The marketing director argued: "I am in the process of negotiating a major new contract with a motorcycle rental company for Discover model. For such a big order they will not pay our normal prices but we need to at least cover our incremental costs. I am not convinced that activity-based costing would achieve this as it merely averages costs for our entire production". The managing director argued: "I believe that activity-based costing would be an improvement but it still has its problems. For instance, if we carry out an activity many times surely we get better at it, and costs fall rather than remain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver". The chairman argued: "I cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no difference to me". REQUIRED: (a) Calculate the total profit on each of Oriental Motors three types of product using each of the following methods to attribute overheads: (1) The existing methods based upon labour hours. (II) Activity-based costing. (6 MARKS) (6 MARKS) (b) Write a report to the directors of Oriental Motors as its cost accountant. The report should: (1) Evaluate the labour hours and the activity-based costing methods in the circumstances of Oriental Motors. (4 MARKS) (II) Examine the implications of activity-based costing for Oriental Motors, and in so doing evaluate the issues raised by each of the directors. (4 MARKS) In drafting the report to directors, refer your calculations in requirement (a) above where appropriate.