Sunrise Ltd. produces two types of office desks as Executive and Elite desks. The company uses a Conventional costing system that has two direct-cost categories (direct materials and direct labour). Regarding indirect costs, the company uses a single indirec t-cost pool of machine hours to allocate the indirect cost. For 2017, Sunrise Ltd estimates its manufacturing overhead costs of $240,000 and 8,000 machine hours. Sunrise collected the following information for 2017

Required:

(a) Using the Conventional costing system, calculate the product cost per unit for the Executive and Elite desk. (30 marks)

(b) Sunrise Ltd is concerned about the accuracy of the costs assigned to the Executive and Elite desk and therefore is planning to implement an activity-based costing (ABC) system. Sunrises ABC system would have the same direct-cost categories as its Conventional costing system. However, instead of a single indirect-cost pool, there would now be three categories (design, setup and printing machine operations) for assigning indirect costs. To see how activity-based costing would affect the costs of Executive desk or Elite desk, the following information is collected for an analysis.

Using the activity-based costing system, calculate the estimated product cost per unit for an Executive and Elite desk. (50 marks)

(c) Compare the costs of the Executive desk and Elite desk under a Conventional and an activity-based costing system. Explain why the Conventional and activity-based costing system differ in the cost of the Executive and Elite desk. (20 marks)

Executive desk Elite desk Number of desks Machine hours per desk Price per desk Cost of materials per desk Direct labour costs per desk 300 desks 10 $900 $200 $180 200 desks 10 $1,300 $300 $410