Smithy Pty Ltd manufactures two types of products: the standard and the deluxe model. The company has made the standard model for years; the deluxe model was introduced several years ago. Both products require machining, assembly and packaging. The following information is available for standard and the deluxe model. Standard Direct material $10.00 Direct labour 5 minutes Machining time 6 minutes Deluxe $15.00 10 minutes 12 minutes Last year Smithy Pty Ltd produced 20,000 units of standard, and 30,000 units of deluxe model. The following costs were associated with this level of production: - Direct material Direct labour Machining time (overhead) $650,000 $400,000 $960,000 $2,100,000 Total Costs Smithy Pty Ltd has considered the introduction of activity based costing (ABC). To assist with the potential adoption of ABC management have estimated the following data:- Overhead Cost Cost Driver Overhead Activity Total Cost Driver Consumption Standard 2,000 5,000 Cost Driver Consumption Deluxe 6,000 5,000 Machining Setups 8,000 10,000 Receiving 1,000 300 700 $160,000 Machine hours 200,000 Number setups 300,000 Number receipts 300,000 Number orders $960,000 Packing 2,000 400 1,600 Total Required: 1. Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead costs on the basis of machine hours. Using this rate and other data from the question, determine the unit cost of each product type (4 marks). 2. Compute the activity rate for each of the activity cost pools (2 marks). 3. Using the activity rates you computed in (2) above, do the following: Compute the total amount of manufacturing overhead cost that would be applied to each product type using the activity-based costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each product (10 marks). Compute the unit product cost of each product type under this ABC method (4 marks). 4. What are the management and long-term strategy implications if the standard and the deluxe model were selling at 5% above cost under both traditional overhead costing system and the proposed ABC system? (6 marks) 5. What does Smithy Pty Ltd need to consider before adopting activity-based costing? Explain your answer. (4 marks)