Part A

Hardwood Limited has an activity-based costing system with three activity cost pools: Processing, Setting Up, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appear below:

Activity cost pools:

Processing $12,200

Setting up $25,100

Other $17,700

MHs Batches

Product Red 2,400 700

Product Blue 17,600 300

Total 20,000 1,000

Product Red Product Blue

Sales (total) $135,700 $98,000

Direct materials (total) $61,700 $31,000

Direct labour (total) $52,200 $45,800

Determine the product margins for each product using activity-based costing. Show your calculations.

Part B

At a recent staff meeting, Daniel Hamburg the production manager raised concerns that John Healy the newly recruited management accountant is not considering all manufacturing costs while calculating product costs under the activity-based costing system. While John was attempting to address Daniels concern during the meeting, Tang Chu the CEO stopped him as the meeting had to finish soon. However, Tang told John to prepare a report addressing Daniels concern, which needs to be submitted before the next meeting. Imagine yourself as John and prepare the report.

[Maximum word limit: 240 words]