Auto Driver Ltd. (ADL) manufactures and sells automotive parts. ADL allocates manufacturing overhead to both of its customers based on machine hours. One of ADL's customers, Prairie Motors, has regularly complained of being charged non-competitive prices, so ADL is considering using an activity-based-costing (ABC) system and has collected the following information:

Use of cost driver

Activity Cost driver Costs BC Motors Prairie Motors Total

Machine setup Number of setups $ 37,200 210 100 310

Material handling Number of parts 27,300 100 30 130

Milling Machine hours 24,000 1,200 2,800 4,000

Assembly Direct labour hours 136,500 1,500 2,400 3,900

Required:

a) Calculate the overhead costs that should be allocated to Prairie Motors under ADL's current costing system.

b) Calculate the overhead costs that should be allocated to Prairie Motors under the ABC system.

c) Assume that ADL sets prices based on a cost-plus-25% methodology, and all other costs remain constant. Calculate the amount by which the price charged to Prairie Motors should increase or decrease if ADL changes to an ABC system.