Required:

(i) Calculate the unit cost of each product ifthe conventional costing approach is used (ii) Determine the unit cost of producing each product if activity based costing is used (iii) ) Based on the answers in part (i) and (ii), discuss the differences in the product costs under the traditional and activity-based costing (ABC) approaches and make a recommendation as to whether ABC should be used.

(b) The Target Furniture Pty Ltd manufactures two types of chairs - Lounge and King. The company is currently using a traditional costing system with direct labour hours as the cost driver. The company is considering whether to use the activity-based costing (ABC) method to allocate overhead costs to products. Budgeted overhead costs of the upcoming accounting period follow: Activity Total budgeted Activity driver Material setups Material handling Assembly activity cost $350,000 $250,000 $600,000 Number of material setups Number of parts Number of labour hours The activity level for the year is King Number of parts Number of setups Total labour hours Units completed Direct material cost per unit Direct labour cost per unit Lounge 25,000 30 40,000 10,000 $50 $100 100,000 95 20,000 5,000 $100 $150