Section 2 George Company manufactured a single product called a mono-circuit for many years. Three years ago, the company automated a portion of its plant and at the same time introduced a second product called a bi-circuit that has become increasingly popular. The bi-circuit product is a more complex product than the mono-circuit, requiring two hours of direct labour time per unit to manufacture, three times the amount of direct material than that used for mono-circuit and extensive machining in the automated portion of the plant. In addition, it requires numerous inspections to ensure that high quality is maintained. The mono-circuit requires only one hour of direct labour time per unit, only a small amount of machining, and few quality control checks. Manufacturing overhead costs are assigned to the products on the basis of direct labour hours. Despite the growing popularity of the company's new bi-circuit, profits have declined steadily. Management is beginning to believe that the company's costing system may be faulty. Unit costs for materials and labour for the mono-circuit are as follows: In Rands Direct materials Direct labour Mono-circuit 40.00 18.00 Management estimates that the company will incur R3 million in manufacturing overhead costs during the current year and that 40 000 units of mono-circuit and 10 000 units of the bi-circuit will be produced and sold. Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. Some preliminary work has been done and the data that have been collected are displayed in the table below: Activities and cost drivers Mono-circuit (Activities) Bi-circuit (Activities) Maintaining parts (number of part types) Processing orders (number of orders) Quality control (number of tests) Machine-related (machine hours) Estimated overhead Cost (R) 360 000 540 000 600 000 1 500 000 300 2 000 2 000 20 000 600 1 000 6 000 30 000 REQUIRED Marks (a) Calculate the unit product cost of each of the two products manufactured by George Company assuming the company continues to apply manufacturing overhead cost to products on the basis of direct labour hours. 5 10 (b) Calculate the unit product cost of each of the two products manufactured by George Company assuming the company uses activity-based costing to apply manufacturing overhead cost to products. TOTAL MARKS 15