Fashion Pottery Company Ltd. is noted for a full line of quality products. The company operates one of the plants in Mumbai, India. That plant produces two types of products: Indian Design A, and Contemporary Design B. Raj Chetty, the CEO of the company, recently decided to change from a volume-based costing system to an activity-based costing system. Before making the change company wide he wanted to assess the effect on the product cost of the Mumbai plant. This plant was chosen because it produces only two types of products, most other plants produced at least a dozen. To assess the effect of the change, the following data

have been gathered :

Products	Quantity	Prime Cost (Direct cost)	Machine Hours	Material Moves	Setups
Indian A	200,000 units	$700,000	50,000 hrs	700,000 moves	100 set ups
Contemporary B	50,000 units	$150,000	12,500 hrs	100,000 moves	50 set ups
Total Value ($)	$850,000		$250,000	$300,000	$15,000

$250,000 is the cost of maintenance of machine.

Under the current system, the cost of maintenance, material handling and setups are assigned to the products on the basis of machine hours.

Required

1. Compute the unit cost of each product using the volume-based approach.

(10 marks)

2. Compute the unit cost of each product using an activity-based costing approach.

(15 marks)