Office Ltd manufactures custom made "desk chairs". At the moment the company has two types of products on the market, the"Plush"and the"Swivel". The company currently uses a traditional costing system and allocates overheadcostsbased on anestimated 83,200 direct labour hours.The following cost information has been used as a basis for pricing decisions over the past year. The company has produced 30,000 units of plush and 25,000 units of Swivel.

Per-unit data

Plush

Swivel

Direct labour hours

1.5

2.5

Direct labour cost per hour

$13

$15

Direct materials

$55

$35

Direct machine hours

5

1.5

Selling Price

$180

$120

The new company controller Ms Bossy considering the use of Activity Based Costing to apply overhead and has collected the following data:

Number of Events

Activity center

Cost driver

Traceable

costs $

Plush

Swivel

Set-ups

Number of setups

$50,000

100

100

Special design

Design hours

$182,000

900

100

Packaging

Packaging orders

$450,000

20,000

30,000

Machining

Machine hours

$150,000

9,000

1,000

Total manufacturing overhead costs

$832,000

Required: (where necessary round off answer to 2 decimal places)

Question 1(2 points)

a. Using the traditional costing system, calculate the company's predetermined overhead rate.

b.Calculate the total product cost per unit of both products (Plush and Swivel) using the traditional overhead allocation rate calculated in part (a) above.

c. Calculate the overhead activity rate for each activity centre using the Activity Based Costing (ABC) approach

d. Using an Activity Based Costing (ABC) approach calculate the total product costs of one unit of Plush andone unit of Swivel.

e. Discuss why the unit cost for the Plush was different under the two techniques used above.