Clean Paint Pty Ltd manufactures two high-quality base paints: an oil-based paint and a latex paint. Both are housepaint and are manufactured in neutral white colour only. Clean Paint Pty Ltd sells the white base paints to franchised retail paint and decorating stores where pigments are added to tint (colour) the paint as the customer desires. The oil-based paint is made with organic solvents (petroleum products) such as mineral spirits or turpentine. The latex paint is made with water; synthetic resin particles are suspended in the water; and dry and harden when exposed to the air. Clean Paint Pty Ltd uses the same processing equipment to produce both paints in different production runs. Between batches, the vats and other processing equipment must be washed and cleaned. After analyzing the companys entire operations, Clean Paint Pty Ltd accountants and production have identified activity cost pools and accumulated annual budgeted overhead costs by the pool as follows. Activity Cost Pools Estimated Overhead Purchasing Processing (weighing and mixing, grinding, thinning and drying, straining) Packaging (quarts, gallons and 5-gallons) Testing Storage and inventory control Washing and cleaning equipment Total annual budgeted overhead $240,000 $1,400,000 $580,000 $240,000 $180,000 $560,000 $3,200,000 Following further analysis, activity cost drivers were identified and their expected use by product and activity were scheduled as follows. Expected Use of Drivers per Product Activity Cost Pools Cost Drivers Expected Cost Drivers per Activity Oil-based Latex Purchasing Purchase orders Processing Gallons processed 1,500 orders 800 700 1,000,000 400,000 600,000 gallons 6 Packaging Testing Storing Washing Containers filled Numbers of Tests Avg. gals. On hand Number of batches 400,000 180,000 containers 4,000 tests 2,100 18,000 gallons 10,400 800 batches 350 220,000 1,900 7,600 450 Clean Paint Pty Ltd has budgeted 400,000 gallons of oil-based paint and 600,000 gallons of latex paint for processing during this year. Instructions a. Prepare a schedule showing the computations of the activity-based overhead rates and a schedule assigning each activitys overhead cost pool to each product (5 Marks). b. Explain the four benefits of ABC compared to the traditional costing system in Clean Paint Pty Ltd (5 Marks). c. Compute the overhead cost per unit for each product (5 Marks).