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The Gong Ltd manufactures two models of specific product, model A and model B. The company sets the budget for manufacturing overhead costs $551,250 and allocates the costs to both products based on direct labour hours. The company provides the costs of the product as follows:

	Model A	Model B
Direct material cost per unit	$4.50	$5.00
Direct labour cost per unit	$9.00	$4.50
Direct labour hours	14,000	2,500
Units produced	35,000	10,000

After attending a seminar on ABC costing, the manager of the Gong Ltd starting to believe that the current system to allocate the overhead cost is inaccurate. The manager considered using the Activity Based Costing approach. After making an analysis, it was found that factory overhead was made up of five separate activities as summarised below:

Activity Cost pool	% of total overhead costs	Activity Cost Driver	Allocation
			Model A	Model B
Production set-ups	10%	Number of production runs	5	10
Machining	30%	Machine hours	7,500	5,000
Materials purchasing	24%	Number of purchase orders	20	50
Inspection	22%	Inspection hours	3,500	3,850
Materials handling	14%	Number of materials requisitions	30	60
	100%

Required (show your calculation)

(a) Calculate manufacturing costs per unit for each product under a simple method using direct labour hours to base the Overhead rate.	(6 marks)
(b) Calculate manufacturing costs per unit for each product under Activity Based Costing.	(14 marks)
(c) Which method do you recommend and why?	(5 marks)

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