Assessment Details Part A: Jassie Ltd manufactures two types of baby cots, Jasmin and Cassie, and currently applies overhead on the basis of direct labour hours. Information about the company's products and budgets: Jasmin Cassie Estimated Product Volume 2,000 units Estimated Product Volume 3,000 units Direct Material Cost $ 45.00 per unit Direct Material Cost $ 60.00 per unit Direct Labour Per Unit 3.00 hours $22 p/hr Direct Labour Per Unit 4.00 hours $22 p/hr Jassie's overhead of $1,000,000 can be identified with three major activities: Budget Overheads Order Processing $ 250,000 Machine Processing $ 660,000 Product Inspection $ 90,000 Total $ 1,000,000 Budget Direct Labour Hours 18,000 These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Actual data relevant to these activities follow:

Orders Processed Machine Hours Worked Inspection Hours Jasmin 500 15,000 1,000 Cassie 1,200 18,000 4,000 Total 1,700 33,000 5,000

Profit has been decreasing, despite a significant factory upgrade with new, highly automated equipment being installed, which was expected to produce significant operating efficiencies. Required: 1 Currently direct labour hours are used to apply overhead to production, calculate the unit manufacturing costs of the Jasmin and Cassie cots if the expected manufacturing volume is attained. [8 marks] 2 If activity-based costing could be used, calculate the unit manufacturing costs of the Jasmin and Cassie cots if the expected manufacturing volume is attained. [12 marks] 3 Compare the use of direct labour hours as an application base with activity-based costing. (a) Has either product been over-costed or under-costed? Calculate the amount of the cost distortion for each product. [2 marks] (b) Discuss and explain how the possible cost distortion and determination of selling prices may have contributed to the company's declining profit.