Question $1$

Milky Inc. produces yogurt to its customers in New York. In order to improve profitability, management wants to move away from the traditional system in absorbing overheads. Overheads are currently absorbed using labour hours and the entity currently has budgeted overhead cost of $$20,000,000$ and budgeted labour hours of $400,000.$

The following data has been provided about the cost pools and its respective cost drivers for the total budgeted overheads:

$\backslash$table$[[$Cost pools,Allocated costs,Drivers,Activity levels$],[$Set$-$ ups,$$5,000,000,$Number of set$-$ups,$100,000],[$Machining$,$$$8,000,000,$Machine hours,$400,000],[$Quality control,$$4,000,000,$Number of inspections,$500,000],[$Maintenance$,$$$3,000,000,$Maintenance hours,$150,200]]$

Selling and distribution cost is $25\%$ of prime cost and a mark$-$up of $20\%$ is applied on the total cost of production to attain the selling price of yogurt. Material is $$120$ per litre and the labour rate per hour is $$12.$ Each item uses the following:

$\backslash$table$[[$Direct material,$1\mathrm{.}40$ litres$],[$Direct labour,$4\mathrm{.}5$ hours$],[$Number of set$-$ups,$2],[$Machine hours,$1\mathrm{.}5],[$Number of inspections,$6],[$Maintenance hours,$4]]$

Required:

$($a$)$ Calculate the unit cost and selling price of each yogurt using the traditional costing approach.

$($b$)$ Calculate the unit cost and selling price of each yogurt using the ABC approach.