Question 2: The Smith Company manufactures a variety of handcrafted bed frames. The companys manufacturing activities and related data for the current year follow.

Manufacturing activity	Estimated cost	Cost driver used as allocation base	Estimated volume for cost driver
Material Handling	$ 400 000	Number of parts	800 000 parts
Cutting	1 200 000	Machine hours	40 000 hours
Assembly	3 000 000	Direct labour hours	150 000 hours
Wood staining	1 320 000	Number of frames stained	60 000 frames

Two styles of bed frames were produced in July: a wood frame with fewer parts, and a metal frame that required no staining activities. Direct labour is paid $25 per hour. Their quantities, direct material costs and other data follow:

	Units produced	Direct material	Machine hours	Number of parts	Direct labour hours
Wood frames	5 000	$600 000	5 000	100 000	6 000
Metal frames	1 000	200 000	500	10 000	3 000

Required

(a) Compute the ABC cost allocation rates and then calculate total manufacturing costs and unit costs of the wood and metal frames. (4)

(b) Non-manufacturing activities, such as product design, were analysed and allocated to the wood frame at $10 each and the metal frame at $15 each. Similar analyses were conducted of other non-manufacturing activities, such as distribution, marketing and customer service. The support costs allocated were $50 per wood frame and $80 per metal frame. Calculate the product cost per unit including the non-manufacturing costs. (2)

Refer to the article Factors of application of activity-based costing method: Evidence from a

transitional country and discuss the factors are important in adopting Activity-Based Costing system?