Hebatz Bhd manufactures four products, namely A1, A2, A3 and A4, using the same plant and processes. The following information relates to a production period:

Product	Volume (units)	Material cost per unit (RM)	Direct labour hours per unit	Machine hours per unit	Labour cost per unit (RM)
A1	500	5	0.5	0.25	3
A2	5,000	5	0.5	0.25	3
A3	600	16	2.0	1.00	12
A4	7,000	17	1.5	1.50	9

The total production overheads recorded by the cost accounting system is analysed under thefollowing

Cost pools						RM			Cost drivers
Factory overhead cost						37,424			Machine hours
Set up Costs						4,355			No.of set-ups
Ordering costs						1,920			No.of material orders
Material handling costs						7,580			No.of times the material was handled
Administration of spare parts						8,600			No.of spare parts

Currently, Hebatz Bhd uses machine hours as a basis in absorbing overheads into theirproducts. However, the managing director of the company is dissatisfied with the currentmethod used in the factory.

As the junior accountant of the company, your investigation into the production activities for theperiod reveals the following totals:

Product		No.of set-ups		No.of material orders			No.of times the material was handled			No.of spare parts
A1		1		1			2			2
A2		6		4			10			5
A3		2		1			3			1
A4		8		4			12			4

Required:

a. Compute the production cost per unit using activity-based costing (ABC) method and traditional costing method.

b. Based on your point of view on traditional and ABC approach:

i. Comment on your findings based on answer in (a). Include in your answer the possible reasons why the use of a cost driver can distort the product costs.

ii. In general, why do you think the companys profits have steadily declined even though the sales have been increasing rapidly?