Question

Hamilton Ltd makes two styles of trophy, basic and deluxe, and operates at capacity. Hamilton does large custom orders. Hamilton budgets to produce 10 000 basic trophies and   5 000 deluxe trophies. Production takes place in two production departments: Forming and Assembly. In the Forming Department, indirect production costs are accumulated in two cost pools, set-up and general overhead. In the Assembly Department, all indirect production costs are accumulated in one general overhead cost pool. The basic trophies are formed in batches of 200 but because of the more intricate detail of the deluxe trophies, these are formed in batches of 50.

The management accountant has asked you to compare cost allocations according to the different approaches. Budgeted cost information is given in the table opposite.

Hamilton budgeted information for the year ended 30 November 2019
Forming Department	Basic	Deluxe	Total
Direct materials	$60 000	$35 000	$95 000
Direct production labour	30 000	20 000	50 000
Overhead costs:
Set-up			48 000
General overhead			32 000
Assembly Department	Basic	Deluxe	Total
Direct materials	$ 5 000	$10 000	$15 000
Direct production labour	15 000	25 000	40 000
Overhead costs:
General overhead			40 000

a. Calculate the budgeted unit cost of basic and deluxe trophies where Hamilton allocates overhead costs in each department using activity-based costing, where set-up costs are allocated based on number of batches and general overhead costs for each department are allocated based on direct production labour costs of each department.   

b. Explain briefly why plant-wide, department and activity-based costing systems show different costs for the basic and deluxe trophies. Recommend one of these systems and provide reasons for your answer.