1 PSC Limited manufactures and sells chess sets. It produces three models: the Posh, the Standard and the Common. The company currently uses traditional absorption costing but you have been asked to explore the impact of using more modern costing methods. Details of the three products are: Selling price Production Labour Common Standard Posh per set and Sales Material cost per set Machine hours per hours per (sets) set set 162 3,500 49 1.5 3 252 1,500 99 2.0 4 342 1,000 149 2.5 5 The hourly rate for direct labour is 7.50 per hour and production overheads are currently absorbed on a labour hour basis. The following activity volumes are available for the product range for the period: Number of set-ups Common 1,750 Standard 750 Posh 500 Total 3,000 Number of material movements Number of inspections 585 100 250 200 165 300 1,000 600 Production overhead amounts to 537,500 in total and analysis shows that these overheads can be broken down into the following cost pools: Costs relating to quality control 30% Costs relating to materials handling 20% Costs relating to machine hours 35% 15% Costs relating to set-ups You are required to: a) Calculate the full cost per unit for each product based on traditional absorption costing. (6 marks) b) Calculate the full cost per unit for each product using activity-based costing. (13 marks) c) Discuss how using activity-based costing may help PSC Ltd improve its profitability. (6 marks) (Total 25 marks)