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- (25 marks) ABC Ltd. manufactures household items sold at trade shows. The items, classified as either Tables or Frames, are manufactured on a common assembly line. Although different direct materials are used, the direct labour cost is the same for each product line. WWW The plant-wide rate for allocating manufacturing overhead to its products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in changing the cost system to a cost driver concept. With the help of the accounting department, the manager has been able to establish the following relationships between production costs and some of the indirect manufacturing activities for July, along with the production data for the two product lines: Unit activity Tables activities Frames activities cost Material handling $3.00 2000 1300 Activity Number of parts Machine hours Units began Number tested 205 300 Machining Assembly $10.00 $1.60 800 1200 Inspection $2.00 100 1200 Unit activity cost Tables activities Frames activities Material handling $3.00 2000 1300 Activity Number of parts Machine hours Units began Number tested 300 Machining Assembly $10.00 $1.60 205 800 1200 Inspection $2.00 100 1200 Direct costs: Labour Materials Tables $14,000 $14,200 Frames $22,000 $12,500 Required 1. Using activity-based costing determine the total production cost of each of the two product lines for July and the cost per unit assuming all units started were completed. Why the company choose ABC system? 2