4 (Activity-Based-Costing) 20 marks FE Ltd (FE) produces three products- A, B, C. During the previous fiscal year of 2018, FE incurred $2,000,000 of manufacturing overhead costs and produced 200,000 units product A, 20,000 units of product B and 50,000 units of product C. FE's overhead application rate was $10 per direct labour hour. Based on this rate, the cost per unit for each product group in 2018 was as follows: Direct materials Direct labour Overhead Total Product A Product B Product C $4.00 $40.00 $4.00 $6.00 $45.00 $15.00 $2.00 $30.00 $20.00 $12.00 $115.00 $39.00 The profitability of FE has been declining for the past three years despite the successful introduction of the new product B which has now captured more thana 50% share of the market. The production manager has been boasting that he can produce product B at a much cheaper price than any of his competitors, hence the reason FE can charge a much lower price for product b than its competitors and the consequent increase in market share. A special task force has been established to help the company understand the reason for its decline in profitability. The task force is considering a new costing system, that is an activity-based-costing system for 2019. The system will use four cost drivers: machine setups, purchase orders, scheduling and quality inspections. Data, from 2018 on the cost associated with each of the four activities is as follows: Machine Setups - $100,000 Purchase orders $100,000 Scheduling $1,500,000 Quality Inspections- $300,000 Total $2,000,000