ACR Automotive Component Remanufacturing Ltd have built up a reputation for supplying the highest quality Land Rover products and service worldwide. Land Rover UK has approached ACR to consider expanding its production of the Electronic Automatic Gearbox Controller to a total annual quantity of 2,000 units. This part is a low-volume, complex product with a high gross margin that is based on a proposed (quoted) unit sales price of 7.50. ACR uses a traditional costing system that allocates indirect manufacturing costs based on direct-labour cost. The rate currently used is calculated on the 3,300,000 annual factory overhead divided by 825,000 annual direct labour cost. To produce 2,000 units of Electronic Automatic Gearbox Controller requires 5,000 of direct material and 1,000 direct labour. ACR expects to earn 25% Gross margin.

The management of ACR decided to examine the effectiveness of their traditional costing versus an activity-based costing system. A team consisting of accounting and engineering analysts has collected the following data.

Activity Centre	Traceable Factory overhead costs (Annual)
Quality inspection	800,000
Production scheduling	50,000
Setup	600,000
Shipping	300,000
Shipping administration	50,000
Production	1,500,000
Total indirect manufacturing costs	3,300,000

Activity Centre: Cost Driver	Annual Cost Driver Quantity
Quantity: Number of pieces scrapped	10,000
Production Scheduling and set up: Number of set ups	500
Shipping: Number of containers shipped	60,000
Shipping administration: Number of shipments	1,000
Production: Number of machine hours	10,000

The accounting and engineering team has performed activity analysis and provides the following estimates for the total quantity of cost drivers to be used to produce 2,000 units of the Electronic Automatic Gearbox Controller.

Cost Driver	Cost-Driver Consumption
Pieces scrapped	120
Set ups	4
Containers shipped	10
Shipments	5
Machine hours	15

Required:

1. Calculate total and unit costs for each product if all overhead costs are absorbed based on direct labour cost.

2. Calculate the total and unit costs for each product, using activity-based costing

3. Calculate the selling price under both the traditional approach and ABC

4. Briefly describe which of the two approaches produce the most preferable result and why.