Question 2 (30 marks) The Automachine Corporation produces three high-quality components and last year allocated all costs except material on the basis of direct labour hours/unit. However, due to the introduction of CAD/CAM and a complete review of the cost allocation system, Automachine Corporation is considering changing its basis of machined component costs. For the following year the budget and production data have been extracted by the machine manufacturing department: Activity 1 - Automated machinery total cost $1,800,000 Activity 2 - Finishing operations total cost 530,000 Activity 3 - Material handling total costs 130,000 Activity 4 - Packaging and shipping costs 100,000 Activity 5 - Production setup total costs 80,000 Activity 6 - Production scheduling total costs 60,000 $2,700,000 The most appropriate cost drivers for the six activities have been identified as: machine hours, direct labour hours, number of parts, number of orders shipped, number of production setups, and number of production orders respectively. Based on actual data for the previous year, next year's predicted data for the three high-quality components are as follows: Compu #123 Compu #456 Compu #789 4 Machine hours/unit Direct labour hours/unit Number of parts/unit 4 10 1 6 3 25 15 60 components are as follows: Compu #123 Compu #1456 Compu #789 4 Machine hours/unit Direct labour hours/unit Number of parts/unit Number of orders shipped Number of production setups Number of production orders Total units to be produced Direct materials cost/unit 4 1 15 500 50 150 5,000 40 3 25 1,000 25 35 2,500 25 10 6 60 400 25 100 400 55 Required: As the Management Accountant for the Automachine Corporation, prepare supporting schedules for: a) Activity rates for each of the six activities. b) A budget of total costs and unit costs for each of the three components, excluding direct materials. c) The computation of the budgeted total and unit costs using the old direct labour hour based system for each of the three components. d) Comparing the results of (b) and (c) above suggest the most appropriate system, and discuss the pros and cons of using ABC cost drivers