QUESTION THREE Drawers Ltd manufactures two types of storage cabinets - Type A and Type B. The company applies overhead to all units at the rate of 80 per machine hour. Production information is as follows: Sales units Direct materials cost per unit Direct labour cost per unit Type A 8,000 35 20 Type B 15,000 60 20 The accountant, who is studying the use of activity-based costing, has determined that the company's overhead can be identified with three activities: manufacturing setups, machine processing and product shipping. Data on the number of setups, machine hours and number of outgoing shipments, which are the activities' three respective cost drivers, are as follows: Total Type A 50 16,000 100 Setups Machine hours Outgoing shipments Type B 30 22,500 75 80 38,500 175 The company's total overhead of 3,080,000 is subdivided as follows: manufacturing setups overhead costs 672,000; machine processing overhead costs 1,848,000; and product shipping overhead costs 560,000. REQUIRED: (a) (b) (c) Calculate the prime cost per unit for Type A and Type B storage cabinets (5 Marks) Calculate the production cost per unit for Type A and Type B storage cabinets using the machine hour predetermined overhead rate. (10 Marks) Calculate the production cost per unit for Types of A and Type B storage cabinets using the activity-based costing system. (15 Marks) Discuss three changes in the business environment have led to activity-based costing becoming more prevalent. (10 Marks) Discuss three benefits and three drawbacks of activity-based costing. (10 Marks) (d) (e) (TOTAL: 50 MARKS)