Horn Product Ltd manufactures two types of products Handbags and Suitcases. Both products are produced using the same equipment and similar processes. The following budgeted data has been obtained for the year ended 31 December 2019.

Product	Handbags	Suitcases
Production quantity	12500	1250
Number of purchase orders	200	100
Number of set-ups	75	50

Resources required per unit	Handbags	Suitcases
Direct material ()	12.50	31.25
Direct labour (hours)	5.00	5.00
Machine time (hours)	2.50	2.50

Budgeted production overheads for the year have been analysed as follows:

Volume related overheads	137,500
Purchases related overheads	150,000
Set-up related overheads	262,500

The budgeted wage rate is 10 per hour. The companys present system is to absorb overheads by product units using rates per labour hour.

However, the company is considering implementing a system of activity-based costing. An activity-based investigation revealed that the cost drivers for the overhead costs are as follows:

Overhead cost	Cost driver
Volume related overheads	Machine hours
Purchases related overheads	Number of purchase orders
Set-up related overheads	Number of set-ups

Required:

1. Calculate the unit costs for each type of product using:

1. The traditional costing method.
2. The proposed activity-based costing approach.

(20 marks)

2. Compare your results in (i) and (ii) above and briefly comment on your findings.

(Maximum word count: 100 words)

5. marks)