Question 2 (11 marks)

1. Provide two reasons for an outdated costing system. (2 marks)
2. PICO Ltd is a manufacturer of picnic tables of varying sizes. It is considering switching to the ABC system. As its management accountant, identify two (2) potential activity-based costing pools for PICO Ltd and their appropriate cost drivers? (4 marks)
3. Kula Company Ltd manufactures two products, Flora and Fauna. Estimates for the company's products for next year are provided below:

	Flora	Fauna
Estimated production volume	3 000	4 000
Direct material cost	$60 / unit	$90 / unit
Direct labour per unit	3 hours @ $25 / hour	4 hours @ $25 / hour

Kula's estimated overhead of $1 500 000 can be identified with three major activities: order processing ($280 000), machine processing ($1 020 000) and product inspection ($200 000). These activities are driven by the number of orders processed, machine hours, and inspection hours, respectively.

Estimated activity levels for the next year are as follows:

	Flora	Fauna	Total
Orders processed	500	300	800
Machine hours	39 000	46 000	85 000
Inspection hours	7 000	18 000	25 000

Required:

Assuming that Kula Company Ltd uses activity-based costing to apply overhead to production, calculate the unit manufacturing costs of the Flora and Fauna products if the estimated manufacturing volume is attained. (5 marks)