4, (Activity-Based-Costing) 20 Marks XY Ltd (XY) produces three products-LM and N. During the previous fiscal year of 2018 XY incurred $4,000,000 of manufacturing overhead costs and produced 400,000 units product L, 40,000 units of product M and 100,000 units of product N. XY's overhead application rate was $20 per direct labour hour. Based on this rate, the cost per unit for each product group in 2018 was as follows: Direct materials Direct labour Overhead Total Product L $8.00 Product M $80.00 Product N $8.00 $12.00 $90.00 $30.00 $4.00 $60.00 $40.00 $24.00 $230.00 $78.00 The profitability of XY has been declining for the past three years despite the successful introduction of the new product M which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product M at a much cheaper price than any of his competitors, hence the reason XY can charge a much lower price for product M than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $200,000 Purchase orders- $200,000 Scheduling $3,000,000 Quality Inspections- $600,000 I Total $4,000,000 53,000,000 Quality Inspections $600,000 Total $4,000,000 The task force determined that it will use the following allocation bases Machine Setups- Number of setups Purchase orders Scheduling Number of purchase orders Number of production orders Quality Inspections- Number of units produced Volume measures for 2019 for each product and each allocation base were as follows: Number of setups Number of purchase orders Number of production orders Number of units produced Product A 400 Product B Product C Total 800 800 2,000 200 500 300 1,000 500 3,000 1,500 5,000 200,000 1,200,000 600,000 2,000,000 Required: a) Calculate the unit costs of the three products under the new activity-based costing system b) What insight is provided by the new profitability analysis? c) What should XY do to improve profitability