DM Products, Ltd., of NZ makes two specialty metal parts- S10001 and T10007- for Benz. For many years, the company has used a simple plantwide cost driver rate based on direct labor hours in allocating manufacturing support costs. The company also uses an activity-based costing system for internal decision making purposes. After studying the plants manufacturing activities and costs, the management accountant of DM has collected the following data for last year:

Item	S10001	T10007
Units produced and sold	50,000	100,000
Direct labor hours used	100,000	300,000
Direct labor cost	$1,000,000	$4,500,000
Number of times handled	40,000	20,000
Number of parts	12,000	8,000
Number of design changes	2,000	1,000
Number of product setups	8,000	600

The management accountant has also estimated that the following manufacturing support costs and activities will be incurred.

Cost pool	Total activity	Costs
Handling	60,000	$3,000,000
Number of parts	20,000	2,400,000
Design changes	3,000	3,300,000
Setups	14,000	2,800,000
Organization -sustaining costs	Whole plant	2,800,000
Total		$14,300,000

The direct materials cost for product S101 is $120 per unit, while for product T107 it is $140 per unit. The company determines its product prices by adding a 25% markup to its reported product costs.

Required

1. Compute the product margins for the parts- S10001 and T10007 under the companys traditional costing system. You must show all of your calculation.
2. Compute the product margins for the parts- S10001 and T10007 under the companys using ABC system. You must show all of your calculations.
3. Explain which of the two methods from requirement (a) and (b) produces more accurate estimates of job costs and prices, and why? Justify your answer using calculations from requirement (a) and (b)
4. Explain why Durbee should continue using ABC as a supplement to rather a replacement for, the companys usual costing system?