Albany Machinery manufactures two products, Basic and Superior, and applies overhead on the basis of direct labour hours. Anticipated (budgeted) overhead and direct labour time for the upcoming accounting period are $1,510,000 and 37,600 hours, respectively. Information about the companys products follows:

Basic:
Estimated product volume	4 800 units
Direct material cost	$26 per unit
Direct labour per unit	3 hours at $13 per hour
Superior:
Estimated product volume	5 800 units
Direct material cost	$62 per unit
Direct labour per unit	4 hours at $13 per hour

Albany Machinery budgeted overhead of $1,510,000 has three major activities: order processing ($242,000), machine processing ($1,126,000) and product inspection ($142,000). The three activities are driven by; number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities are as follows:

	Order Processed	Machine Hours Worked	Inspection Hours
Basic	510	21 800	4 000
Superior	290	34 400	6 000
Total	800	56 200	10 000

Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery were installed. Machinery that was expected to produce significant operating efficiencies.

Required: Show all your workings.

1. Assuming the use of direct labour hours to apply overhead to production, calculate the unit total manufacturing costs of the Basic and Superior products if the expected manufacturing volume is attained. (8 marks)

2. Assuming use of activity-based costing, calculate the unit total manufacturing costs of the basic and superior if the expected manufacturing volume is attained. (15 marks)

3. Discuss the effect of the difference costing calculated in (i) and (ii) will have and the selling price of the product and profit. (4 marks)