b) X-Bars makes a product in tow models, model M1 and model M2. Details of the two products are as follows. Model M1 Model M2 Annual sales 10,000 10,000 Number of sales orders 100 200 Sales price per unit 50 55 Direct material cost per unit 12 20 Direct labour hours per unit 2 2.5 Direct labour rate per unit 8 7 Special parts per unit 3 4 Production batch size 2,000 2,000 Setups per batch 1 2 Cost driver Setup costs 120,000 Number of setups Material handling costs 80,000 Number of batches Special part handling costs 50,000 Number of special parts Invoicing 60,000 Number of sales orders Other overheads 110,000 Direct labour hours Total overheads A customer wants to place an order for either M1 or M2. As a result, the sales manager wishes to know the profit from each model. Required i. ii. iii. Calculate the profit (loss) per unit for each model using Activity-Based Costing (ABC). 20 Marks Using the information above, identify which product, if any, the sales manager should favour assuming she wants to maximise profit. 20 Marks Briefly discuss the limitations of the traditional costing methods and how ABC aims to mitigate these limitations. 4/10 10 Marks Total 100 Marks