Question 3 Lukow Products produces two types industrial component parts the B300 and the T500. Cost information of two products are available as follows: B300 T500 Selling price per unit 140.00 99.00 Direct materials per unit 72.00 53.00 Direct labor per unit 24.00 12.00 Direct labor-hours per unit 2.0 DLHS 1.0 DLHS Estimated annual production 20,000 units 80,000 units Currently, company's costing system allocates manufacturing overhead to units of products using direct labor-hours as cost driver. The estimations of manufacturing overhead and direct labor-hours for the next year are shown below: Estimated total manufacturing overhead 1,980,000 Estimated total direct labor-hours 120,000 DLHS Required: a. Compute the unit costs for B300 and T500 products under the company's traditional costing system. Comment on the profitability of the two products The managers of company are testing an activity-based costing system under which manufacturing overhead are traced to 4 activities: (the Other cost pool includes idle capacity that is not used by either products) Activities and Activity Measures Estimated Expected activity Overhead B300 T500 Total Cost Supporting direct labor (direct labor-hours) 783,600 40,000 80,000 120,000 Batch setups (setups) 495,000 200 100 300 Product sustaining (number of products) 602,400 1 1 2 Other 99,000 NA NA NA Total manufacturing overhead cost 1,980,000 b. Compute the overhead cost assigned to each unit of products and unit costs for the B300 and the T500 products under the activity-based costing system c. Explain why the traditional and activity-based cost assignments differ d. Comment on the profitability of the two products using the new cost information e. Based on cost information provided in appplication of ABC, what would you suggest the management do to improve the financial performance of the company