Question 1 (Total 15.5 marks) Office Ltd. manufactures desk and ergonomic chairs, and currently applies manufacturing overhead costs to all units using a plant-wide overhead rate based on labour hours. Production information is as follows: Desk Chair Ergonomic Chair Direct materials cost per unit $80 $140 Direct labour cost per unit $20 $40 Selling price per unit $200 $400 Number of units produced (for the year) 20,000 40,000 The management accountant of Office Lid., Mrs Smith, suggests that Activity-Based Costing (ABC) is a more appropriate overhead costing system for the firm. She suggests the firm's overhead can be identified with the following activities: Overhead Activity Activity Cost Setups $100.000 Engineering $400,000 Machine maintenance $450.000 Inspections $1,000,000 Below is the expected quantity of activities for the year: Desk Chair Ergonomic Chair Labour hours 40,000 80.000 Number of setups 5.000 10,000 Engineering hours 10,000 20,000 Machine hours 10,000 20,000 Number of inspections 20,000 40.000 Required: 1. Calculate the plant-wide overhead rate and unit manufacturing overhead cost of desk and ergonomic chairs using the company's current overhead costing system. (Assume that the actual volume of activities is the same as the budgeted amount for the year). 2. Calculate the unit manufacturing cost (round amounts to two decimal places) of desk and ergonomic chairs using the Activity-Based Costing (ABC) method. (Assume that the actual volume of activities is the same as the budgeted amounts for the year). 3. Explain why the unit overhead cost assigned to each chair is different under the ABC method and plant-wide method. 4. The sales manager of Office Lid. is considering offering a $50 discount on the selling price of desk chairs to increase sales. Should the discount be applied if Office Lid. uses the ABC method to allocate its overhead cost? Briefly discuss and show relevant calculations. (1.5 + 9 + 3 +2 = 15.5 marks) Start typing your answer from here