Seneca manufactures two products, Regular and Premium, and applies overhead on the basis of machine hours. Anticipated overhead and machine hour time for the upcoming accounting period are $640,000 and 20,000 machine hours, respectively. Information about the companys product follows:

Regular:
Estimated product volume	2500 units
Direct material cost	$20 per unit
Direct labour cost	$35 per unit
Premium:
Estimated product volume	2000 units
Direct material cost	$35 per unit
Direct labour cost	$48 per unit

Senecas overhead of $640,000 can be identified with three major activities: order processing, machining and quality control. These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data on the activities' cost drivers are provided as follows (both budgeted and actual):

Overhead activity	Overhead cost	Cost driver	Regular	Premium
Order processing	$90,000	Order processed	100 orders	200 orders
Machining	$350,000	Machine hours	10,000 hours	10,000 hours
Quality control	$200,000	Inspection hours	500 hours	4500 hours

Senior management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in profit is especially concerning because the company installed highly automated machinery which was expected to improve operation efficiencies.

Required:

i) Assuming the use of machine hours is used to apply overhead costs to production, calculate the unit manufacturing costs of the Regular and Premium products if the expected manufacturing volume is attained. (2 marks)

ii) Assuming use of activity-based costing, calculate the unit manufacturing costs of the Regular and Premium products if the expected manufacturing volume is attained. (5 marks)

iii) Based on the answers in part i) and ii), comment on the differences in the costs calculated using the two product costing systems. (2 marks)

iv) Senecas selling prices are based heavily on cost. Is it possible that the differences in the costs calculated using the two product costing systems and the subsequent determination of selling prices are contributing to the companys declining profitability? Explain. (3 marks)