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Oak Kitchen produces three different types of wardrobe: Farmhouse, Corona and Brimmes. Overhead costs are allocated using the total of direct labour hours. However, the company invested in new machines and it has reduced significantly the number of labour hours. Considering this recent change, Oak Kitchen is exploring the possibility of using ABC costing. Oak Kitchen accountants have elaborated the following information. Product Annual output (units) Annual direct labour (hours) Selling price ( per unit) Raw material cost ( per unit) Farmhouse Corona Brimmes 3,000 2,600 500 100,000 150,000 50,000 5,000 7,000 10,000 500 700 900 Cost drivers Cost pools Delivers to retailers Cost drivers The number of delivers of fitted kitchen The number of times the assembly line process is re-set to accommodate a production run of a different type of fitted kitchen The number of purchase order Set-ups Purchase orders Cost driver volume per activity and per product: Number of Number of Product deliveries to set-ups retailers Farmhouse 90 25 Corona 70 40 Brimmes 50 20 Number of purchase orders 300 200 100 Overhead costs by activity: Activity Deliveries Set-up costs Purchase orders 1,400,000.00 5,000,000.00 2,600,000.00 Additional data All direct labour is paid 5 per hour. The company holds no stock. REQUIRED: a. Calculate total profit of each three types of fitted kitchen using the existing method based on labour hours. b. Calculate total profit of each three types of fitted kitchen using the existing Activity-Based Costing. c. Explain the differences between the results achieved by two types of costing in the items above

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