Bilko Limited manufactures three products: GX, TY, and KZ. They all use the same resources but in different quantities - see budgeted data below: GX TY Planned production units i.e. budgeted 1,500 2,500 KZ 4,000 Direct labour hours per production unit (LHrs) 2 4 3 Machine hours per production unit (Mhrs) 3 2 3 Production batch size Machine setups per production batch (Setups Purchase orders per batch Material movement per batch SANS 50 100 500 2 3 1 4 4 6 10 5 4 The budgeted production overhead costs for the financial period amount to 400,000. Currently the practice is to absorb overhead costs into product costs using an absorption rate based on direct labour hours. Following this practice, the production overhead cost attributed to each product unit is: Product GX Product TY Product KZ 32 64 48 The production director of Bilko Ltd, following a short management course at Newcastle Business School, has recommended Activity Based Costing (ABC) approach to production overhead allocation to the management. The production department have identified the following cost drivers and related cost pools: Cost pool Machine maintenance Machine setups Purchasing Material handling Cost Drivers 150,000 Machine hours 75,000 Machine setups 100,000 Purchase orders 65,000 Material movements There is additional 80,000 of overhead costs, caused by several different factors and activities that are mainly labour related and are to be attributed to products on labour hour basis. Required: A. Calculate cost driver rates and the production overhead cost attributed to each product unit using an activity-based approach. (13 marks) B. From management and costing perspectives, briefly discuss why the production director suggested the application of ABC approach to product costing as opposed to the traditional practice in the organisation. (3 marks) C. Briefly discuss four major implementation challenges that a company could face at the introduction phase of an ABC programme