December 2010 // question 4

Hi,

Question 4 (Dec 2010) – Product B – I noticed that when we calculate how much it costs to make using two different methods, the results are almost the same.

The traditional absorption costing method uses the labour hours to absorb the cost into products, and the other method looks at different cost drivers and important here that none of the activities have a cost driver of labour hours (which if it had – could explain the similarities in the overhead cost per unit).

Why do you think both methods give us almost the same cost for making Product B then?

Thank you