Melaleuca Manufacturing Ltd produces timber felling machines for the forestry industry around the world. Its two machines are the Tree Toppler, which cuts down trees and clears undergrowth, and the Melaleuca Muncher that pulps the timber into woodchips.

The costs, volumes and cost drivers for the year ended 30 June 2019 are as follows:

Required

(a) Calculate the unit cost of each machine if all overhead costs are allocated on the basis of direct labour hours.

(b) Calculate the unit cost of each machine using activity-based costing.

(c) Which machine is likely to be overpriced using the single overhead allocation method of direct labour hours and which machine is likely to be underpriced?

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Sales and production (units) Direct materials cost Direct labour hours Machine hours Direct labour cost Number of production runs Number of deliveries Number of receipts of materials Number of production orders Overhead costs Set-up costs Machine maintenance and depreciation Receiving and warehousing Preparing for shipment and freight Engineering for production orders Total Tree Toppler Melaleuca Muncher 320 $86000 280 $72000 Total 600 $47 680 000 48.75 32 24 560 66.75 54 $ 1755 $ 1152 $ 14 16 320 280 19 200 160 13440 112 36 480 875520 30 600 32 640 272 $ 720000 2918400 1958 400 5160000 1 523 200 $12 280000