1. London Food Processing corporation (LFP. Ltd) manufactures two products: A and B. A review of the company's accounting records revealed the following per- unit costs and production volumes: A B Production volume (units) 2.500 5.000 Direct material E 40 E 50 Direct labor: 2 hours at $15 30 3 hours at $15 45 Manufacturing overhead: 2 hours at 890 180 3 hours at 890 270 Manufacturing overhead is currently computed by spreading overhead of $1,800,000 over 20,000 direct labor hours. Management is considering a shift to activity-based costing in an effort to improve the firm's accounting procedures, and the following data are available: Cost Driver Volume Cost Pool Cost Cost Driver A B Total Setups E 240,000 Number of setups 100 20 120 General factory 1,500,000 Direct labor hours 5,000 15,000 20,000 Machine 60.000 Machine hours 2,200 800 3,000 processing E1.800.000 LFP. Ltd determines selling prices by adding 30% to a product's total cost. Required:c) LFP. Ltd. has recently encountered significant international competition for product B, with considerable business being lost to very aggressive suppliers. Will activity-based costing allow the company to be more competitive with product B from a price perspective? Briefly explain. (3 marks) d) Will the cost and selling price of product A likely increase or decrease if LFP. Ltd. changes to activity-based costing? Why? Hint: No calculations are necessary. (3 marks) e) "ABC systems may result in misallocation of indirect costs." Do you agree? Give reasons for your answer. (4 marks) f) While implementing ABC system for the first time, achieving a significant change overnight is difficult and this may de- motivate employees. Based on literature review to critically discuss the limitations of ABC system and suggest how can managers overcome this problem? Suggested word count permitted is 500. Where appropriate include the bibliography at the end of this question, bibliography is not included in the word count. (15 marks)