2 XYZ Ltd. manufactures two products and applies overhead on the basis of direct labour hours. Budgeted overhead and direct labour hours for 2022 are 2,000,000 and 50,000 hours, respectively. Information about the company's products is as follows: Product A: Production volume Direct materials costs Direct labour costs Direct labour hours Product B: Production volume Direct materials costs Direct labour costs Direct labour hours 2,000 units 35/unit 20/hour 5 hours/unit 5,000 units 50/unit 20/hour 8 hours/unit The company's overhead of 2,000,000 can be identified with three major activities: order processing (200,000), machine processing (1,500,000), and product inspection (300,000). These activities are driven by the number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities are as follow: Number of orders Machine hours Inspection hours processed worked Product A 200 10,000 6,000 Product B 300 20,000 4,000 Total 500 30,000 10,000 REQUIRED: Please note: a maximum word count applies to some parts of this question. (a) Using the information provided above: (i) Calculate the overhead rates that would be used for order processing, machine processing, and product inspection in an activity-based costing system. (6 marks) 4 Please turn over (ii) In an activity-based costing system, if the expected manufacturing volume is attained, calculate the unit overhead costs of the two products. (10 marks) Using the unit overhead costs above, calculate the unit manufacturing costs of the two products. (4 marks) (iii) How much per-unit overheads would be allocated to Products A and B, respectively, if the company used traditional absorption costing and applied overhead solely on the basis of direct labour hours? Ensure that you present the overhead rates for each product, which should be based on budgeted numbers. (6 marks) Based on the calculation above, which of the two products would be under- or over-costed? Provide a brief explanation for your answer. (4 marks; max 140 words) (b) Why do product-costing systems based on a single, volume-based cost driver tend to over-cost high-volume products? What undesirable strategic effects can such distortion of product costs have? (8 marks; max 280 words) Explain TWO factors that are likely to distort product costs under traditional, volume-based product-costing systems. Provide an example to illustrate your answer. (12 marks; max 420 words) (Total marks for question 2: 50 marks) 5 Please turn over