FPD Ltd makes and sells three different food processor models: Household, Home Pro and Chef Pro. For many years, the Household was the only food processor made by the FPD and was highly regarded for its quality. Unfortunately, demand has steadily fallen over the past two years. William Prout, FPDs production manager, suspected the reason for the decline in sales was increasing competition from overseas suppliers with lower prices. Home Pro and Chef Pro have been added to the product line over the past six years. Both are more advanced and technologically sophisticated than the Household. As a result, they are significantly more complex to manufacture and require special materials handling, tooling and setting up for each batch produced. Given the complexity of manufacturing the Home Pro and Chef Pro, FPD charges what it believes is a premium price for both of these products. The selling price of the three models are shown in the table below.

As mentioned above, sales of the Household model has been in decline. William has been advocating to stop selling the Household model as it is too expensive to make. The Chef Pro has been selling well and William has been arguing for FPD to produce and sell more of the Chef Pro. The Home Pro has also been doing well in its market. The total forecast sales and production volume for the three food processors next year is 15,000 units. Expected sales volumes for each model are shown in the following table.

The estimated prime costs for the three products are shown in the following table.

Indirect manufacturing costs are budgeted to be $810,000 and these are currently allocated across the three product lines on the basis of direct labour hours (DLHs), as shown in the following table.

In your role as management accountant, you have been concerned about the divisions manufacturing overhead cost allocation model. You believe that part of the problem FPD has with its existing range of household electrical products is inaccurate costing. Given the diversity in the range of electrical household products manufactured, FPD has contemplated switching the allocation of indirect manufacturing costs to an ABC system. Therefore, you decide to prepare an analysis on the usefulness of an ABC system for FPD by applying this approach to the three different food processor models. Analysis of the $810,000 of indirect manufacturing costs indicates that they can be classified into four broad cost pools, with four different cost drivers. The budgeted indirect manufacturing costs for the food processor product line for next year are shown in the following table.

Budgeted production details for the food processor product line for next year are summarised in the next table.

REQUIRED: a. Compute the predetermined overhead rate under the traditional costing system, with direct labour hours (DLHs) as the cost driver."Calculate the product cost per unit for each of the three food processors using the traditional method of costing, with direct labour hours (DLH) as the cost driver."c. Using ABC, calculate the pool rates for each cost pool. d. Using ABC, calculate the unit cost for each product. e. From your analysis, determine whether FPD should follow Williams recommendation.

Household $160.00 Current selling price Home Pro $200.00 Chef Pro $230.00 Household 10,000 Home Pro 3,000 Chef Pro 2,000 Total 15,000 Sales and production volume Prime cost element Direct materials per unit Direct labour per unit Total prime costs per unit Household $ 55.00 $ 40.00 $ 95.00 Home Pro $ 85.00 $ 30.00 $ 115.00 Chef Pro $ 105.00 $ 25.00 $ 130.00 Cost driver transactions Direct labour hours (DLHs) per unit Household 2 hours Home Pro 1.5 hours Chef Pro 1.25 hours Indirect manufacturing cost pool Labour-related costs Machine-related costs Product scheduling and other set-up costs Materials handling costs Total budgeted costs for all cost pools Cost Driver Direct labour hours (DLHs) Machine hours Production runs Materials movements Annual budgeted costs $270,000 $350,000 $120,000 $70,000 $810,000 Cost driver transactions DLHs per unit Machine hours per unit Number of production runs Number of materials movements Household 2 1 50 90 Home Pro 1.5 3 150 260 Chef Pro 1.25 3 200 350