Boxes Ltd manufactures two types of boxes, plastic and cardboard, and currently it applies manufacturing overhead to all units at the rate of $50 per direct labour hour.Production information is as follows:

Product Information

Plastic box

Cardboard box

Direct material cost per unit

$20$10Direct labour cost per hour

$20$10Number of units produced100,000200,000

The management accountant Sally suggests that Activity-Based Costing (ABC) is more appropriate for the firm. She suggests the firm's overhead can be identified with three activities: setups, machine processing and inspections.

The firm's total overhead of $4,500,000 is subdivided as follows:

• Setups: $800,000
• Machine processing: $3,500,000
• Inspections: $200,000

Information on the number of setups, labour hours, machine hours and the number of inspections is below:

Plastic Box

Cardboard Box

Total

Labour hours

20,000

80,000

100,000

Number of setups

80

120

200

Machine hours

60,000

40,000

100,000

Number of inspections

50

30

80

Required:

SHOW CALCULATIONS FOR EACH QUESTION IN THE RESPONSE BOX.

1. Calculate the unit manufacturing overhead cost of plastic and cardboard boxes using the company's current overhead costing procedures.
2. Calculate the unitmanufacturing overhead cost of plastic and cardboard boxes using the Activity-Based Costing (ABC) method.
3. Which overhead allocation method would you recommend Boxes Ltd to use and Explain why?