Question 1 Total 25 marks Dominos Ltd manufactures childrens' toys in two models, A and B. Total budgeted manufacturing overhead costs are $495,000 and these are allocated between the two products based on direct labour hours. The following cost details are provided concerning the two products: Direct material cost per unit Direct labour cost per unit Direct labour hours Units produced A $4.50 $9.00 14,000 28,000 B $5.00 $4.50 2,500 10,000 Management believes that the current system (simple method) of using direct labour hours to apply overhead to production is inaccurate, and is interested in adopting an Activity Based Costing approach. Further analysis revealed that factory overhead is made up of five separate activities, as shown below: % of total Activity Cost pool overhead Activity Cost Driver Allocation costs A B 10% 5 10 30% 5,000 Production set-ups Machining Materials purchasing Inspection Materials handling Number of production runs Machine hours Number of purchase orders Inspection hours Number of materials requisitions 7,500 30 24% 50 22% 3,500 3,760 14% 30 60 100% Required (show all the workings) (6 marks) a) Calculate manufacturing costs per unit for each product under a simple method using direct labour hours to base the Overhead rate. (13 marks) b) Calculate manufacturing costs per unit for each product under Activity Based Costing (ABC). (6 marks) c) Compare the cost per unit under simple and ABC method, which method do you recommend and why? Explain