Question 3 (60 marks) Pet-O-Rama makes three types of dog toys: the turtle, the spiky ball and the pretzel. It takes 25,25 and 10 machine hours to manufacture 1,000-unit batches of each of the three products. The company has provided the following data: Turtle Spiky Ball Pretzel Sales units - projected 30,000 50,000 40,000 Per unit: Sales price Direct materials Direct labour Overhead cost per unit (based on DLH) $40 $8 $15 $12 $20 $4 $3 $3 $30 $8 $9 $9 30 25 1.0 0.5 20 Hours per 1,000-unit batch Direct labour hours 40 10 Machine hours 25 10 Setup hours 1.0 Inspection hours 30 20 The company allocates overhead based on direct labour hours (DLH) under traditional costing The management accountant has gathered the following information to determine whether an activity-based costing system would be more appropriate: Overhead Activity Activity costs levels Direct labour hours 2,900 hours Machine hours 2,400 hours Setups $465,500 95 hours Inspections $405,000 2,700 inspection hours $870,500 Required: a) Determine the projected operating profit, in total and per unit, for each of the three products, using direct labour hours to allocate overhead, under the traditional system. (9 marks) b) Calculate activity-cost-driver rates for setup costs and inspection costs (6 marks) c) Using activity-based costing, calculate for each product: i) the total profit showing detail line-by-line (9 marks) ii) the estimated new overhead cost per unit (3 marks) iii) the estimated operating profit per unit (3 marks) d) Create some useful tables and visualisations of your data (20 marks) e) Explain the differences between the traditional and activity-based costing systems. Which system provides a better estimate of profitability for Pet-O-Rama? Explain why. (10 marks)