Sydney Equipment Ltd manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. For the next accounting period, the estimated total amount of manufacturing overhead and total direct labour hours are $1,920,000 and 25,000 hours, respectively. Relevant information about the two products is available as follows: Basic 3.000 units $50 per unit Superior 4 000 units $80 per unit Estimated production volume Direct material cost Direct labour hours 3 hours per unit $24 per hour 4 hours per unit $24 per hour Direct labour rate The manufacturing overhead of $1 920 000 can be identified with three major activities; order processing ($360,000), machine processing ($1,344,000) and product inspection ($216,000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Below is the activity data relevant to the two products: Orders processed Machine hours worked Inspection hours Basic 330 19,800 2,200 Superior 220 24,200 8,800 The 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 expecting to achieve significant operating efficiencies. Required: (a) Using traditional costing method applying manufacturing overhead to production based on direct labour hours, calculate the product costs per unit of the two products. (5 marks) (b) Using activity-based costing method, calculate the product costs per unit of the two products. (10 marks) (c) Based on your calculations in (a) and (b) above, explain which product is overcosted and which product is undercosted A briefly discuss the impact of overcosting and undercosting to the organisation