Task 3: Traditional Costing and Activity-based Costing (ABC) Neagle Ltd makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an activity-based costing system is being considered. Details of the three product for a typical period are: Labour hours Machine hours Materials per unit ($) Volume units Product A Product B Product C 0,5 1,5 20 750 1,5 1 1 12 1250 3 25 7000 Direct labor costs $14 per hour and production overheads are absorbed on a machine hour basis. The rate for the period is $28 per machine hour. 1. Calculate the cost per unit for each product using conventional methods. Further analysis shows that the total of production overheads can be divided as follows: Costs related to set-ups 35% Costs related to machinery 20% Costs of materials handling 15% Costs of relating inspection 30% 100% Total production overhead The following activity volumes are associated with the product line for the period as a whole. Total activities for the period: Product A Product B Product C Total Number of set- ups Number of material movements Number of Inspections 75 12 150 115 21 180 480 87 670 670 120 1000 2. Calculate the cost per unit for each product using ABC principles. 3. Comment on the reasons for any differences in the costs between your answers to 1. and 2.