Lots of Fruits Limited Income Statement Sales 5 816,000 Cost of goods sold (675,000) Gross margin 141,000 Selling and administrative expenses (48,700) Net operating prot $92,300 The company currently calculates the protability of its two products using a traditional costing system which allocates overhead costs on the basis of direct labor hours. The estimated total overhead for the coming year is $75,000. The direct labor cost is $40 per hour. Details about the two products are as follows: Citrus Tropical Estimated annual sales and production 2,400 boxes 4,800 boxes Selling price per unit $100 $120 Direct materials per unit $50 $75 Direct labor hours per unit 15 min 30 min Direct labor costs per unit ? ? Janet Tse, the CFO, is considering using an Activity-Based Costing (ABC) costing system to more accurately assign costs to the two products. Out of the total selling and administrative expenses, Janet's team estimates that $14,000 and $17,500 can be directly traced to Citrus and Tropical fruit boxes, respectively. The rest are organization-sustaining costs. The overhead is composed of the following items, with the activities proposed by Janet's team: Overhead Expected activity 91min Imalsat Delivery costs (number of deliveries) $26,000 400 600 Product-sustaining costs (number of products) 7,800 1 1 Utilities and other growing-related staffing 24,000 7 ? costs (direct labor hours) Other (organization-sustaining costs) 17,200 NA NA Total overhead costs $752000 Required: (a) Calculate the pre-determined overhead rate to allocate overhead costs under the traditional costing system. (2 marks) (b) Compute the product margins for the two products under the traditional costing system. (4 marks) (c) Calculate the activity rates for allocating costs under the ABC system. (4 marks) ((1) Compute the product margins for the two products under the ABC system. (5 marks) (e) Explain why product costs differ between the traditional and ABC systems