Softlife Sdn. Bhd. (SSB) is producing innovative massage chair that provides one-stop relief for customer neck, shoulders and back. SSB produces two types of massage chairs: a standard model and a deluxe model. The deluxe model is a special massage chair with the latest technology. The price of deluxe model is more expensive than standard model. The product costs data for the two models are as follows:

SSBs traditional costing system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor hours as the allocation base. The estimated data for SSB is shown below:

Total estimated manufacturing overhead costs ($ ) 215,000

Total estimated direct labor hours (hour) 10,000

REQUIRED:

(a) Calculate the cost per unit for standard model and deluxe model under:

(i) Traditional costing system.

(ii) Activity based costing system (ABC).

(b) Explain FOUR reasons why traditional costing system is vulnerable to cost distortion.

(c) State FOUR classification of activities under ABC system.

\begin{tabular}{lrr} \hline & Standard & Deluxe \\ \hline Units produced & 3,000 & 500 \\ Selling price per unit ($) & 840.00 & 1,588.00 \\ Direct materials costs per unit ($) & 93.75 & 218.75 \\ Direct labor costs per unit ($) & 56.25 & 131.25 \\ Direct labor hours per unit (hour) & 2.5 & 5.0 \\ \hline \end{tabular} \begin{tabular}{lcrr} \hline & Estimated & \multicolumn{2}{c}{ Estimated Activity } \\ Activities and Activity Measures & Overhead Cost (\$) & Standard & Deluxe \\ \hline Maintenance (hours) & 56,000 & 13,500 & 6,500 \\ Engineering support (hours) & 42,000 & 2,945 & 1,255 \\ Material handling (number of moves) & 48,000 & 6,400 & 3,200 \\ Setups (number of setups) & 31,000 & 2,300 & 1,700 \\ Purchasing (number of requisitions) & 38,000 & 2,850 & 1,900 \\ \cline { 2 - 2 } Total manufacturing overhead cost & \multicolumn{2}{c}{215,000} \\ \cline { 2 - 2 } & \multicolumn{2}{c}{} \\ \hline \end{tabular}