Tas Machinery manufactures two products, basic and superior, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $1,460,00 and 29,200 hours, respectively. Information about the company's products follows: 3,600 units $25 per unit 3 hours at $12 per hour Basic Estimated product volume Direct material cost Direct labour per unit Superior Estimated product volume Direct material cost Direct labour per unit 4,600 units S40 per unit 4 hours at $12 per hour Tas Machinery's overhead of $1,460,000 can be identified with three major activities: order processing ($245,000), machine processing ($1,035,000) and product inspection ($180,000). These activities are driven by number of orders processed, machine hours worked and inspection hours, respectively. Data relevant to these activities follow: Machine Hours Worked 23,500 34.000 57,500 Order Processed 390 310 700 Basic Superior Total Inspection Hours 2,800 9.200 12.000 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 installedmachinery that was expected to produce significant operating eficiencies. Required: 1. Assuming use of direct labour hours to apply overhead to production, calculate the unit manufacturing costs of the basic and superior products if the expected manufacturing volume is attained. 2. Assuming use of activity-based costing, calculate the unit manufacturing costs of the basic and superior if the expected manufacturing volume is attained. 3. Tas Machinery's selling prices are based heavily on cost. 1. (a) Using direct labour hours as an application base, which product is overcosted and which product is undercosted? Calculate the amount of the cost distortion for each product. 2. (b) Is it possible that overcosting and undercosting (i.e. cost distortion) and the subsequent determination of selling prices are contributing to the company's profit woes? Explain