Jolly-Joe manufactures three different models of washing machines for household use; namely Rustic, Mid-Road, and Posh. The washing machines are aimed at different market segments, have different pricing points and different technical specifications. Product costs are computed using a business-wide overhead absorption rate based on labour hours. Prices are set on a cost-plus basis; i.e. +20%. The following information has been provided: Rustic Mid-Road Posh Material Cost (/unit) 25 105 62.5 1 Direct labour hours (per unit) 0.5 1 Budget production/sales (units) 20,000 1,000 10,000 The budgeted overheads for the year under review are 4,410,000. Direct labour is paid 8 an hour. The business is facing increased competition, especially from imported goods. In light of this, the selling price of Rustic has been reduced to a level that results in a low profit margin. To review the performance of the washing machines, an activity-based costing approach has been proposed by management. Overheads have been grouped into the following cost pools: - Machining Logistics Central costs 2,780,000 590,000 1,040,000 4,410,000 - The Financial Controller stated that these costs could be allocated using cost drivers to reflect the use of resources in each of these categories; namely: Machine hours - Material orders - Floor space After further analysis, the following proportionate statistics have been obtained relating to the total volume of products: Rustic Mid-Road Posh % % % Machine hours 15 6 Material order Floor space 18 40 47 42 45 47 40 MN20690 4 of 5 Required: a) For each product calculate the full cost and selling price determined by: i. The original (traditional) costing method ii. An activity-based costing method [9 marks] [12 marks] b) In light of the two costing systems in a) above, discuss three impacts on the implications of the decision-making process for the two costing systems? [6 marks]