Ozzie Prime Ltd manufactures three types of equipment X, Y and Z The company has been experiencing steady declines in its profitability in recent times. Ozzie Prime Ltd currently uses conventional product costing system whereby overhead costs are allocated on the basis of direct labour hours. The direct labour hours are estimated to be 75,000 hours. The Direct material and Direct Labour costs per unit for the three products are as below: X Y Z Direct Material $540 $750 $900 Direct Labour $50 $200 $100 The management suspects that conventional product costing system used may have contributed to the profit declines. Therefore , the CFO implemented an alternative system namely, activity-based product costing system. Given below are each activity, its cost and its related activity driver. Activity Cost Activity Driver Shipping $ 3,900,000 Number of parts Machining $ 2,250,000 Machine hours Cutting $ 600,000 Labour hours Total manufacturing cost $ 6,750,000 The following information pertains to each product line of Ozzie Prime Ltd for the year: X Y Z Units to be produced 15000 7500 30,000 Parts per unit 2 5 1 Machine hours per unit 5 3 0.5 Labour hours per unit 1 4 1 1) Calculate the predetermined overhead rate based on Direct labour hours (0.5 mark) Please only enter number do not use comma, dollar sign or decimal point Predetermined Rate = Answer 2) Calculate the cost per unit under conventional product costing system? (1.5 mark) Please only enter number do not use comma, dollar sign or decimal point Product X Answer Product Y Answer Product Z Answer 3)Determine the total overhead allocated to each of the three products (4.5 marks) Please only enter number do not use comma, dollar sign or decimal point. X Y Z Shipping Answer Answer Answer Machining Answer Answer Answer Cutting Answer Answer Answer 4) Determine the total cost per unit of producing each product if activity based costing were to be used (1.5 mark) Please only enter number do not use comma, dollar sign or decimal point. Product X Answer Product Y Answer Product Z Answer

a) Discuss the cost distortion by conventional costing and its implications on firm pricing and profitability.

b) Discuss two reasons why ABC is better than traditional costing approaches.