Toys Ltd. manufactures two products called Lasertag and Transporter. The transporter is a more complex product, requiring 0.80 hours of direct labour time per unit to manufacture and extensive machining support. The Lasertag requires only 0.40 hours of direct labour time per unit and only a small amount of machining support. Manufacturing overhead costs are currently assigned to products on the basis of direct labour hours. Direct material and direct labour costs per unit are as follows:

	Lasertag	Transporter
Direct Material	$35	$60
Direct Labour	$6 (0.4 hours at $15 per hour)	$12 (0.8 hours at $15 per hour)

Management estimates that the company will incur $912,000 in manufacturing overhead costs during the current year and 50,000 units of the Lasertag and 25,000 units of the transporter will be produced and sold.

Required:

Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labour hours and the unit product cost of each product

You are required to:

1. Explain the key differences between conventional and contemporary costing system
2. Explain how conventional costing system might cause cost distortions
3. Discuss the issues business organizations might encounter when designing and implementing contemporary costing systems such as ABC.