Illustration 1 ABC

　　A company manufactures two products, X and Y. The company uses absorption costing and fixed production costs and absorbed into production costs on a direct labour hour basis.

　　The budgeted information for the next financial year is as follows:

　　Product XProduct YTotal

　　Production and sales2,000 units5,000 units

　　Direct labour hours per unit32

　　Budgeted direct labour hours6,00010,00016,000

　　Fixed production costs$48,000

　　Absorption rate per direct labour hour

　　Fixed overheads absorbed$18,000$30,000