Lim, Guesthouse Inc. (LGI) manufactures bedroom furniture in sets (a set includes a dresser, two queen-size beds, and one bedside table) for use in motels and hotels. LGI has three customer groups, which it calls the vibrant, quasar and lovely groups. The vibrant products are targeted to low-price motels that are looking for simple furniture, while the lovely furniture is targeted to the very best hotels. The quasar line is attractive to a variety of hotels and motels that appreciate the combination of quality and value. Currently there has been a small increase in the-cost of the vibrant lines, and an appreciable increase in demand in the lovely line, reflecting cyclical changes in the marketplace. Luxury hotels are now in more demand for business travellers. LGI wants to be able to respond to the increased production but worries about the increased production cost and about price setting as its mix of customers and production change. LGI has used a volume-based on direct labour-hours for some time. Direct labour cost is RM12 per hour. Budgeted Cost (RM) Cost Driver Materials handling 349,600 Number of parts Product scheduling 160,000 Number of production orders Setup labour 216,000 Number of setups Automated machinery 1,750,000 Machine-hours Fining 619,500 Direct labour-hours Pack and ship 290,400 Number of orders shipped RM3,385,500 General, selling and admin. Costs RM5,000,000 The budgeted production data for the three product lines follows. Product lines Vibrant Quasar Lovely Units produced RM15,000 5,000 500 Price RM650 RM900 RM1,200 Direct materials cost per unit RM80 RM50 RM110 Number of parts per unit 30 50 120 Direct labour-hours per units 4 5 7 Machine-hours per unit 3 7 15 Production orders 50 70 200 Production setups 20 50 50 Orders shipped 1,000 2,000 300 Number of inspections 2 6 14 2 Required: 1. Determine the production cost per set of each of three customer groups using activity based costing. (Round all rates to two decimal places). (14 marks) 2. Determine the production cost for each of the three customer groups using LFIs current volume-based approach. (7 marks) 3. Compare the two approaches and discuss the strategic and competitive issues of using each of the two methods. (4 marks)