Question 2 (20 marks) Star Computer is manufacturing computer in a local market. Because of the competitiveness of the market, the CEO wants to begin by considering about the pricing of the computers to ensure that selling expensive products at the wrong price is not compromising profit margins. The computers are individually specified by customers for each order and pricing has been on a production cost plus a mark-up of 45%. At present the company uses an absorption costing system based on labor hours in order to calculate the production cost per unit. Data for the year ended 30 September 2019 Volume (units) 23,800 Direct variable costs Material Labor Packaging and Transport Sub-total Total $'000 40,650 3,879 2,118 46,647 Overhead costs Customer service Purchasing and receiving Inventory management Administration of production 7,735 2,451 1,467 2.537 14,190 Total 60,837 Labor time per unit 3 hours Data collected for the year: No. of minutes on calls to customer No. of purchase orders raised No. of components used in production 899,600 21,400 618,800 Question 2 (Continued) Order #345 Units ordered 16 units Direct costs for this order Material Labor Packaging and Transport 27,328 2,608 1,424 Other activities relating to this order No. of minutes on calls to customer No. of purchase orders raised No. of components used in production Administration of production (Absorbed as general overhead) 1,104 64 - 512 3 labor hours per unit Required: (a) A comparison of the selling prices using the current absorption costing method against an Activity Based Costing (ABC) method. You should provide illustrative calculations using the information provided on costs for 2019 and Order #345. (16 marks) (b) Suggest the method of costing the product that you consider is more appropriate and explain why. (4 marks)