Question 3: Activity Based Costing [Total: 24 marks] Morrisson Ltd manufactures two products, A15 and B26, and applies overhead based on direct labour hours. Budgeted overhead and direct labour time for the upcoming accounting pericd are $3,840,000 and 25,000 hours, respectively. Information about the company's products follows: Estimated Direct material Direct Labour per unit production velume cost 3,000 units $100 per unit 3 hours at $48 per hour 4,000 units 160 per unit 4 hours at $48 per hour Morrisson Ltd's overhead of can be identified with three major activities: 5 Order processing 720,000 Machine processing 2 688,000 Product inspection 432,000 Total Overhead 3,840,000 The activities are driven by the number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow: Order Machine hours Inspection processed worked hours 9800 2 8800 o | 550 44000 11,000 Management is concemed about declining profitability, despite an increase in sales. The decrease in profit is concerning because the company recently renovated their plant by installing new, highly automated machinery, which was expected to produce significant operating efficiencies. Required: Show all your workings. i. Assuming the use of direct labour as basis to apply owverhead, calculate the unit manufacturing cost of each of the two products if the expected manufacturing volume is attained. (6 Marks) ii. Assuming the use of activity-based costing, calculate the unit manufacturing cost of each of the two products if the expected manufacturing volume is attained. (10 Marks) iii. Mormisson Lid's selling prices are based on cost. Calculate whether either of the products are under or over costed by the company's current use of the traditional system, compared to the use of activity-based costing. (3 Marks) iv. Isit possible that over and under costing, and basing selling prices on the cost of the products are contributing to the companies profit issues? Explain