Shane Co assembles three models of motorcycle at the same factory: the 50cc Flash, the 250cc Batman and 1000cc Ironman. It sells the motorcycles throughout the world. In response to market pressures, Shane Co has invested heavily in new manufacturing technology in recent years and, as a result, has significantly reduced the size of its workforce. Historically, the company has allocated all overhead costs using total direct labour hours, but is now considering introducing Activity Based Costing (ABC). Shane Cos accountant has produced the following analysis: Annual Annual Direct Raw Output lab hrs Selling mat Price cost (CPU) (CPU) Flash 2,000 200,000 4,000 400 Batman 1,600 220,000 6,000 600 Ironman 400 80,000 8,000 900 The three cost drivers that generate overheads are: Deliveries to retailers: the number of deliveries of motorcycles to retail showrooms Set-ups: the number of times the assembly line process is re-set to accommodate a production run of a different model of motorcycle. Purchase order: the number of purchase orders The annual cost driver volumes relating to each activity and for each model of motorcycle are as follows: Number of Number of Number of Deliveries set-ups purchase orders Flash 100 35 400 7 Batman 80 40 300 Ironman 70 25 100 The annual overhead costs relating to these activities are as follows: 000 Deliveries to retailers 2,400 Set up costs 6,000 Purchase orders 3,600 All direct labour is paid at 5 per hour. The company holds no inventory Required: a) Calculate the total profit on each of Shanes Cos three models using the existing method of allocating overheads based on labour hours (5 marks) b) Recalculate the total profit on each of Shane Cos three models using activity based costing (10 marks) c) Evaluate the labour hours and activity based costing methods in the circumstances of Shane Co.