LALA Ltd manufactures two types of shoes $($Ballet and Bella$)$ and it is located in Park Royal, London. Both types of shoes go through three distinct stages of production processes, namely cutting, sewing and finishing. Finance team has allocated and apportioned the annual budgeted production overheads as follows:

Cost centre Annual budgeted production overheads

Cutting $110,000$

Sewing $110,000$

Finishing $80,00$

The cutting process is mainly mechanised, the sewing process is mainly manual labour and the finishing process is unit$-$based. It is estimated that the total production of Ballet shoes for the year is $25,000$ units and for the Bella shoes is $15,000$ with $40,000$ machine hours and $20,000$ labour hours available for the year.

$$Ballet shoes$$ is one type of shoes produced by the Company. One unit of $$Ballet shoes$$ requires the following prime cost:

Direct materials $12$

Direct labour: Cutting $6$ minutes @ $2$ per hour $0\mathrm{.}20$

Sewing $30$ minutes @ $10$ per hour $5$

Finishing $3$ minutes @ $4$ per hour $0\mathrm{.}20$

One unit of $$Ballet shoes$$ requires $1\mathrm{.}6$ machine hours.

Assuming the role of company$$s management accountant, during the board meeting of last week, you proposed the implementation of the activity$-$based costing $($ABC$)$ approach for the next budgetary period. If the company adopts the ABC approach, the details relating to the planned production overheads are as follows: $($Continued on Next Page$)$

Activity Cost Driver Number of Activities Total Production Overheads

Total Ballet Bella

Materials ordering Number of orders $100604020,000$

Materials issuing Number of issues $40015025030,000$

Machining Machine hours $40,00020,00020,000130,000$

Finishing Labour hours $20,00010,00010,000120,000$

Total $300,000$

Required: $-$

In facilitating the directors$$ decision in the implementation of the ABC approach for the company$$s next budgetary period, as the management accountant, you are required to write a report to board of directors explaining the main features and advantages of ABC approach over traditional costing approach. When writing your report, you should consider the following:

$$ Discuss key features $($with appropriate example$)$ of ABC method

$$ Discuss key advantages of ABC method as compared to traditional costing approach.

$$ Include calculation of full cost per unit of $$Ballet shoes$$ using traditional costing approach and activity$-$based costing $($ABC$)$ approach respectively. Compare the results, and discuss the possible reason$/$reasons for that difference, and what would be negative outcome$/$outcomes if the company choose to continue with traditional costing approach.