WireBuzz Ltd has been operating in the competitive electronics industry for over twenty years. The company produces a range of electronic systems and a few years ago, began manufacturing several different types of wall key pad systems where now two of these, account for the majority of the company's sales. This case focuses on these two types of wall key pad systems: the simple push button pad (PBP) and the LCD wireless touchscreen pad (LWTP). PBP has been the more common product in the industry for several years. The market for this product is quite competitive and price sensitive. WireBuzz plans to sell 62,000 units in the 2021/2022 year at $170 each. LWTP is a recent addition to the Company's product line. This product is different to PBP namely, it incorporates technology that is more sophisticated and the materials used in its production are different to those used for PBP. As such, management has decided to sell LWTP at a premium price. The sales budget for 2021/2022 includes the sale of 35,000 units at $340 each. In addition, there is no beginning or ending inventory budgeted for the year.

WireBuzz currently uses a traditional costing system. Budgeted direct materials costs are $10,830,000 in total, for production of the two types of wall key pads with $5,580,000 being the total budgeted cost for PBP direct materials. Direct labour is budgeted at $20 per direct labour hour (DLH). The company expects to use 4 DLH and 2 machine hours (MH) for each LWTP unit and 1.5 DLH and 1 MH for each PBP unit produced.

This traditional costing system was developed a number of years ago when the company first commenced operations and uses three types of manufacturing overhead: material-related overhead, variable manufacturing overhead and machine-related overhead. WireBuzz applies a material handling charge at 15 percent of direct materials cost, which is not included in variable manufacturing overhead. Variable manufacturing overhead is applied on the basis of direct labour hours. For 2021/2022 the budgeted variable manufacturing overhead rate is $5/DLH. In addition, machine-related overhead is applied on the basis of MH and is budgeted at $22/MH.

Subsequently, Jane and her team conducted an activity analysis and identified that the original three overhead categories used under the traditional costing system involved a series of different activities. Approximately 20% of material related overhead involved the procurement of material components; 18% involved the scheduling of production for the PBP and LWTP wall key pads; 15% involved moving materials around the production facility and the remaining overhead was incurred for packaging and shipping of the wall pads. Quality control accounted for 45% of the variable manufacturing overhead and involved ensuring that finished wall pads conformed to the design specifications for each type. The other variable manufacturing overhead comprised of: setting machines up in preparation for production; disposing of waste; and ordering and maintaining general supplies, which are used in producing the completed wall pads. These were incurred in the ratio of 0.7: 0.25: 0.05 respectively. Machine- related overhead, was now considered a conversion cost, and involved machine soldering of the PBP and LWTP wall key pads and inserting material components into each PBP and LWTP wall key pad. The cost of soldering the wall pads amounted to $634,800. Inserting material components into the wall key pads was a different process, where some of the material components were inserted by machines, and accounted for 30% of the activity cost pool. Other material components involved a more manual insertion process where a number of employees manually inserted individual components into the wall key pads. As a result of this analysis, Jane concluded that the direct labour category was no longer relevant and she also established that the only cost that would remain the same under both the traditional costing method and the ABC method is the cost of direct materials.

Jane and her team also identified information specific to PBP and LWTP. Each PBP wall key pad required two machine setups whilst each LWTP wall key pad required eight setups. A total of forty-six components were used to produce the PBP and LWTP wall key pads. Of these, thirty-four specific components were used in the production of each LWTP wall key pad and fifteen of these components were manually inserted onto the LWTP wall key pad by assembly line employees. The remaining components were used in the production of each PBP wall key pad and assembly line employees manually inserted five of these components onto each PBP wall key pad. Materials were moved three times for each PBP wall key pad and nine times for each LWTP wall key pad. Both types of wall key pads passed an inspection process which involved a total of ten inspections where 20% of these were for each PBP wall key pad and the remaining inspections were for each LWTP wall key pad. A total of 0.60kg of waste would arise from the production of one PBP wall key pad and one LWTP wall key pad, and approximately 15% of this came from the production of each PBP wall key pad.

Janeandherteamhaveaskedyoutohelpthemdesignanewcostingsystem based on the observations of their activity analysis and on the principles of ABC. As part of this task you are required to:

(i) Describe in detail the elements of this new costing system justifying the activity cost pools and activity cost drivers included. You will need to quantify the normal capacity of each activity cost driver.

(ii)Calculate the total cost and unit cost expected for the PBP and LWTP wall key pads using this new ABC system designed above. Please round answers to two decimal places.