GH produces three different models of a speedboat for sale to the retail market. GH currently operates a standard absorption costing system. Budgeting information for next year is given below: Deluxe R'000 86 400 Ultra R'000 102 000 Model of speedboat Superior R'000 Sales 54 000 Direct material 17 600 Direct labour 10 700 Production overhead Gross profit 27 400 40 200 16 600 Total R'000 242 400 85 200 40 700 69 600 46 900 13 400 Deluxe Ultra Superior 1 000 100 Production / Sales (number of boats) Machine hours per boat 800 1 200 200 300 The production overhead cost is absorbed using a machine hour rate. GH is considering changing to an activity based costing system. The main activities and their associated cost drivers and overhead cost have been identified as follows: Activity Machining Set up Quality inspection Stores receiving Stores issue Cost Driver Production overhead cost R'000 Machine hours 13 920 Number of set ups 23 920 Number of quality inspections 14 140 Number of component deliveries 6 840 Number of issues from stores 10 780 69 600 The analysis also revealed the following information: Deluxe 1 200 4 Superior Budgeted production (number of boats) 1 000 Boats per production run 5 Quality inspections per production run Number of component deliveries Number of issues from stores 4 000 Ultra 800 2 30 800 7 000 10 20 500 600 5 000 The machines are set up for each production run of each model. Required: 1.1 Calculate the total gross profit for each model of speedboat: 1.1.1 using the current absorption costing system. (4) 1.2 1.1.2 using the proposed activity based costing system. (12) Explain why an activity based costing system may produce more accurate product costs than a traditional absorption costing system. (3)