The president of the company Mr. Khalid Yaseen has been showing concerns lately with respect to the profitability of the main product (traditional football) because of the increase in its Manufacturing overhead related costs which is over 150 QR per unit. The president thinks that pricing the traditional football above its full cost of 265 would lead to a drop in the market share as competitors with similar specifications are priced around 250QR. The president has hired you as a new financial controller, who holds a Certified Management Accountant (CMA) certificate to assess the profitability of each product before eliminating the traditional football product.

In the first week, you requested the Management and Cost Accounting Department to provide you with additional data related to the four products. Additional data summarizes the direct costs, cost drivers of the overhead categories, and the number of units produced:

	Goalkeeper Gloves	Goal Nets	Training supplies	Traditional Football
Units Produced	1,200	1,300	1,300	20,000
Direct Material Cost	500,000$	500,000$	900,000$	1,550,000$
Direct Labor Cost	$200,000	$300,000	250,000$	$750,000
Overhead Categories
Purchase orders written	180	40	130	50
No. of production run setups	200	407	445	355
Material movements	980	460	926	420
Machine hours	10,500	3,500	28,000	28,000
Design hours	990	345	980	805
Inspection hours	1,520	990	1,540	1,450

On the first week of your work, the management and cost accounting department provided you with the following table summarizing manufacturing overhead categories and their associated costs:

Purchasing	$ 2,062,000
Machine Setups for production runs	$ 703,500
Material Movements	$ 696,500
Machinery	$ 658,000
Design	$ 780,000
Inspection	$ 1,100,000
Total	$ 6,000,000

After reviewing the information in the above tables, you are surprised to find out that the company has been implementing the traditional costing system even though manufacturing overhead has been driven by several activities. You tried to talk to the president not to drop the traditional football product by explaining that the current costing system of the company is inadequate. You further explained that the traditional football product could be more profitable than what it seems under the traditional costing system. You advised the president to use a more accurate costing system that assigns overhead costs to activities and then assigns the costs to the four main products based on the usage of the activities. The president showed interest in the suggested method and subsequently asked you to prepare a report summarizing the cost per unit for each product accordingly.

Required:

1. Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product under the traditional costing system (10%)
2. Prepare a report to Mr. Khalid that shows the calculations of the cost per unit for each product and the suggested costing system (ABC). (30%)
3. Explain the meaning of overcasted products and undercosted by using the given cost information in Hayya company. (5%)
4. Write your recommendations to Mr. Khalid assuming he is going to sell to the market at cost plus 20% as a profit margin. (5%)
5. Lastly, explain how the new costing system suggested by you improves the accuracy of the reported cost of individual models compared to the old costing system. (5%)