Dominos Ltd manufactures childrens toys in two models, A and B. Total budgeted manufacturing overhead costs are $495,000 and these are allocated between the two products based on direct labour hours. The following cost details are provided concerning the two products:

	A	B
Direct material cost per unit	$4.50	$5.00
Direct labour cost per unit	$9.00	$4.50
Direct labour hours	14,000	2,500
Units produced	28,000	10,000

Management believes that the current system (simple method) of using direct labour hours to apply overhead to production is inaccurate, and is interested in adopting an Activity Based Costing approach. Further analysis revealed that factory overhead is made up of five separate activities, as shown below:

Activity Cost pool	% of total overhead costs	Activity Cost Driver	Allocation
			A	B
Production set-ups	10%	Number of production runs	5	10
Machining	30%	Machine hours	7,500	5,000
Materials purchasing	24%	Number of purchase orders	30	50
Inspection	22%	Inspection hours	3,500	3,760
Materials handling	14%	Number of materials requisitions	30	60
	100%

Required (show all the workings)

Calculate manufacturing costs per unit for each product under a simple method using direct labour hours to base the Overhead rate.	(6 marks)
Calculate manufacturing costs per unit for each product under Activity Based Costing (ABC).	(13 marks)
Compare the cost per unit under simple and ABC method, which method do you recommend and why? Explain.	(6 marks)