Wow Berhad manufactures two major electronic components at the same factory: the REG and the DEL. It sells the components throughout the world. In response to market pressures, Wow Berhad has invested heavily in new manufacturing technology in recent years and, as a result, has significantly reduced the size of its workforce. Anticipated overhead and direct labor time for the upcoming accounting period are RM1,600,000 and 25,000 hours, respectively. Information about the company's products are as follows: REG Estimated production volume: 3,000 units. Direct materials cost: RM28 per unit. Direct labor per unit: 3 hours at RM15 per hour. DEL Estimated production volume: 4,000 units. Direct materials cost: RM42 per unit. Direct labor per unit: 4 hours at RM15 per hour. Historically, the company has allocated all overhead costs using total direct labour hours but is now considering introducing activity-based costing (ABC). Wow Berhad's, accountant has produced the following analysis. Wow's overhead of RM1,800,000 can be identified with three major activities: 1) Order processing (RM250,000) 2) Machine processing (RM1,200,000) 3) Product inspection (RM150,000) These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities as follow: Orders Machine Hours Inspection Processed Worked Hours REG 320 16,000 4,000 DEL 180 24,000 6,000 Total 500 40.000 10.000 The company holds no stocks. However, at a board meeting there was some concern over the introduction of activity-based costing. The finance director argued: "I very much doubt whether selling the REG is viable but I am not convinced that activity-based costing would tell us any more than the use of labour hours in assessing the viability of each product." The marketing director argued: "I am in the process of negotiating a major new contract with a telecommunication company for the DEL model. For such a big order they will not pay our normal prices, but we need to at least cover our incremental costs. I am not convinced that activity-based costing would achieve this as it merely averages costs for our entire production." The managing director argued: 1 believe that activity-based costing would be an improvement, but it still has its problems. For instance, if we carry out an activity many times surely, we get better at it, and costs fall rather than remain constant. Similarly, some costs are fixed and do not vary either with labour hours or any other cost driver.' The chairman argued: "I cannot see the problem. The overall profit for the company is the same no matter which method of allocating overheads we use. It seems to make no difference to me.' (c) Calculate the overhead would be applied to a unit of REG and DEL if the company used traditional costing and applied overhead solely on the basis of direct labor hours. (4 marks) (d) Examine the implications of activity-based costing for Wow Berhad and responds to the issues raised by each of the directors by explaining THREE (3) advantages and THREE (3) disadvantages of activity-based costing system as opposed to traditional costing system. (10 marks) [25 marks]