P5-40A (LO 1, 2) International Steel Company has budgeted manufacturing overhead costs of $1,930,000. It has allocated overhead on a plant-wide basis to its two products (soft steel and hard steel) using machine hours, which are estimated to be 90,000 for the current year. The company has decided to experiment with activity-based costing and has created five activity cost pools and related activity cost drivers as follows: Cost Driver Activity Centre Estimated Overhead Estimated Activity Material handling Number of moves $280,000 40,000 moves Purchase orders Number of orders 100,000 1,200 orders Product testing Number of tests 420,000 3,500 tests Machine set-up Number of set-ups 320,000 5,000 set-ups Machining Machine hours 810,000 90,000 machine hours Each unit of the products requires the following: Soft Steel Hard Steel Direct materials costs $300 $200 Direct labour costs $120 $60 Purchase orders Machine set-up Product testing Machining Material handling 5 2 3 10 3 4 50 50 4 Instructions a. Under traditional product costing using machine hours, calculate the total manufacturing cost per unit of both products. (Round overhead rate to the nearest cent.) a. Hard steel: $1,332 b. Under ABC, prepare a schedule showing the calculation of the activity-based overhead rates (per cost driver). (Round to the nearest cent.) b. Per test: $120 c. Calculate the total manufacturing cost per unit for both products under ABC. c. Hard steel: $2,122 d. Write a memo to the president of the company discussing the implications of your analysis for the company's plans. In this memo, provide a brief description of ABC, as well as an explanation of how the traditional approach can result in distortions.