AKC currently uses a traditional costing system to trace the costs of their products. Both products presently apply overhead using a single plantwide overhead rate based on direct labour hours. Monthly budgeted overhead costs and direct labour hours are $$325,000$ and $6,500$ labour hours, respectively.

At the beginning of $2024,$ the Managing Director, Cathy Brown received the following monthly production volume and cost information for the two products $($units$).$

Table $1$: Monthly production volume and cost information

$\backslash$table$[[$Products$,\backslash$table$[[$Estimated$],[$product$],[$volume$]],\{$fd$40903$ff$-93$af$-4386-$a$7$c$1-428$bdc$853956\}$

$\backslash$table$[[$Direct$],[$material$],[$cost per$],[$unit$]]\backslash$right$.,\backslash$table$[[$Direct$],[$labour$],[$cost per$],[$unit$]]],[$Roadrunne$,\backslash$

table$[[5000],[$scarfs$]],\backslash$table$[[$$$120$

Table $2$: Estimated overhead costs for major activities

$\backslash$table$[[$Activities$,\backslash$table$[[$Estimated$],[$Total$],[$Costs$]],\backslash$table$[[$Cost$],[$Drivers$]]],[$Knitting$,$$$162,500,\backslash$table$[[$Machine$],[$hours$]]],[\backslash$table$[[$Order$],[$processing$]],$$$58,500,\backslash$table$[[$Number of$],[$orders$],[$processed$]]],[$Set$-$up$,$$$39,000,\backslash$table$[[$Number of$],[$production$],[$runs$]]],[\backslash$table$[[$Packing$],[$and$],[$dispatching$]],$$$65,000,\backslash$table$[[$Number of$],[$sales$],[$orders$]]],[\backslash$table$[[$Total$],[$overhead$],[$costs$]],$$$325,000,]]$

Table $3$: Cost driver information

$\backslash$table$[[$Products$,\backslash$table$[[$Machine$],[$hours$]],\backslash$table$[[$Number$],[$of orders$],[$processed$]],\backslash$table$[[$Number of$],[$production$],[$runs$]],\backslash$table$[[$Number$],[$of sales$],[$orders$]]],[$Roadrunner$,1000,25,5,1200],[\backslash$table$[[$Wile E$.],[$Coyote$]],4000,125,45,800]]$

Required:

Prepare a report to Cathy Brown, the Managing Director of AKC, advising her on the company's present costing system and a possible activity$-$based costing system as well as the future improvement of the customer value through the use of Activity$-$Based Management $($ABM$).$ Your report to Cathy should include the following:

Report Style

$(3$ marks$)$

A calculation of the predetermined overhead rate based on direct labour hours, AND then a calculation of the unit costs of the Roadrunner Scarf and Wile E$.$ Coyote Vest if the expected production volume in Table $1$ is attained.

$(8$ marks$)$

A calculation of the activity$-$based overhead application rates for knitting, order processing, setup and packing and dispatching.

$(10$ marks$)$

Using the activity$-$based overhead application rates derived from Question $($b$),$ calculate the unit costs of the Roadrunner Scarf and Wile E$.$ Coyote Vest if the expected production volume in Table $1$ is attained.

$(14$ marks$)$

Based on your answers in Questions $($a$)$ and $($c$),$ compare the cost information of the two products under both traditional and ABC system AND then conclude as to which costing system provides more accurate cost information.

Dory Ltd is a retailer customer who wants to place an urgent order from Acme Knitting Company. In addition to ordering the two best$-$selling products $($Roadrunner Scarf and Wile E$.$ Coyote Vest$),$ Dory Ltd requests a special order of a new product, $2000$ units of a Tweety Bird Blouse $($A blouse is typically more feminine and dressy than a shirt. Blouses often have decorative details like ruffles, lace, or embroidery, and they may have a looser, flowing fit$)$ which is made of $100\%$ silk.

After reviewing the customer$-$related cost information, management identifies additional customerrelated cost information as follows:

Table $4$: Dory Ltd$\text{'}$s additional cost information

$\backslash$table$[[$Activities$,\backslash$table$[[$Estimated$],[$Total$],[$Costs$]]],[\backslash$table$[[$Special$],[$design$],[$changes$]],$$$8000$