Semester 1, 2019 MST QUESTION 3 - Activity- Based Costing Total mark for this question: 30 marks [Suggested time: 36 minutes] Tas Machinery manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $960,000 and 25,000 hours, respectively. Information about the company's products follows: Basic Superior Estimated product 3,000 units 4,000 units volume Direct material cost $25 per unit $40 per unit Direct labour per unit 3 hours at $12 per hour 4 hours at $12 per hour Tas Machinery's overhead of $960,000 can be identified with three major activities: order processing ($180,000), machine processing ($672,000) and product inspection ($108,000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Order Machine hours Inspection processed worked hours Basic 330 19,800 2,200 Superior 220 24,200 8,800 Total 550 44,000 11,000 Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed - machinery that was expected to produce significant operating efficiencies. REQUIRED 1. Assuming use of direct labour hours to apply overhead to production, calculate the unit manufacturing costs of the basic and superior products if the expected manufacturing volume is attained. (Note: The OH rate must be labelled correctly) (8 marks) 2. Assuming use of activity-based costing, calculate the unit manufacturing costs of the basic and superior if the expected manufacturing volume is attained. (Note: The OH rates must be labelled correctly) (14 marks) 1