GNC manufactures two products, A and B, in one of its factories. Product A is a low-volume item, sales of which are only 10,000 units each year, and Product B is a high-volume item, sales of which are 40,000 units a year. Both products require two direct labour hours as a basis for assigning overhead cost to its products.

The companys overhead costs total $1,750,000 each year. Unit costs for materials and labour in the factory and the selling prices of the two products are as follows:

	Product A $	Product B $
Direct Materials	50	30
Direct Labour (at $5 per hour)	20	20
Selling Price	170	110

Despite the popularity of Product B, profits have declined steadily in recent years. As a result, management is beginning to question the validity of the cost allocation (absorption) system that it uses.

GNC analysed its operations and found that Product A requires more machine set-ups and more quality inspections than Product B because of the complexity of its design. Also it is necessary to manufacture Product A in small batches, so it requires a relatively large number of production orders compared with Product B.

The details of this overhead analysis are given below:

	Traceable Costs	Number of Events or Transactions
Activity	$	Total	Product A	Product B
Machine set-ups	460,000	5,000	3,000	2,000
Quality inspections	320,000	8,000	5,000	3,000
Production orders	162,000	600	200	400
Machine hours worked	628,000	40,000	12,000	28,000
Material receipts	180,000	750	150	600
	1,750,000

Required:

(a) Calculate the predetermined overhead rate based on direct labour hours.

(b) Determine the cost to manufacture one unit of each product based on your calculation in (a). How much is the profit (or loss) per unit for each product?

(c) Calculate the amount of overhead cost for each product using an activity-based costing approach and the total cost to manufacture one unit of each product. How much is the profit (or loss) per unit for each product?