a) The objective is to determine the cost per unit for each of the two products (Fred and Martha). The first job would be to ascertain the overhead rate which would be applicable.
Total manufacturing overheads = $ 816,000
Total direct hours of labour = 1000*2 (For Fred) + 5000*3 (For Martha) = 17000 hours
Manufacturing overhead per direct labour hour = = 816000/17000 = $ 48
Since, 2 hours of direct labour are used for each unit of Fred, hence unit overhead costs for Fred = 48*2= $ 96
Since, 3 hours of direct labour are used for each unit of Martha, hence unit overhead costs for Martha = 48*3= $ 144
Thus, based on the above computation and the provided direct cost data, the unit cost computation for the two products is summarised in the table below (Emmauel and Otley, 2010)
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Hence, from the above computation, it is apparent that the unit cost for Fred and Martha is $ 166 and $ 249 respectively.
b) With regards to ABC approach, the first step would be find the cost per activity and apply the same to the two products i.e. Fred and Martha.
The following table illustrates the computation of cost per activity in accordance with the concerned activity driver for each of the different activities involved in the manufacturing overhead (Drury, 2006).
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Based on the respective cost drivers consumed for each of the two products, the various activity costs would be allocated to the respective product. This can be carried out as highlighted below (Heisinger, 2009).
Machine Related Costs
Machine related cost per unit machine hour = $50
Machine hour required for unit production of Fred = 4
Machine hour required for unit production of Martha = 1
Hence, machine related overhead cost per unit of Fred = 4*50 = $ 200
Machine related overhead cost per unit of Martha = 1*50 = $ 50
Setup and Inspection
Setup cost per run = $ 4,500
Number of units of Fred in 1 production run = 50
Number of units of Martha in 1 production run = 250
Hence, setup and inspection cost per unit of Fred = (4500/50) = $ 90
Setup and inspection cost per unit of Martha = (4500/250) = $ 18
Engineering Costs
Engineering cost per order change = $ 900
Total engineering cost attributed to Fred = (75/100)*90000 = $ 67500
Engineering cost per unit of Fred = 67500/1000 = $67.5
Total engineering cost attributed to Martha = (25/100)*90000 = $ 22500
Engineering cost per unit of Fred = 22500/5000 = $4.5
Plant related Costs
Since the cost driver of these costs is the area and 80% of the area is utilised for Fred production, hence 80% of the costs would be attributed to the production of Fred units while the remaining 20% would be attributed to the production of Martha.
Hence, plant related costs attributed to Fred = (80/100)*96000 = $ 76,800
Unit plant related costs attributed to Fred = 76800/1000 = $ 76.8
Plant related costs attributed to Martha = (20/100)*96000 = $ 19,200
Unit plant related costs attributed to Martha= 19200/5000 = $ 3.84
Unit overhead cost allocation
Unit overhead cost related to Fred = 200 + 90 + 67.5 + 76.8 = $434.3
Unit overhead cost related to Martha = 50 + 18 + 4.5 + 3.84 = $76.34
Hence, the unit cost of each of the products as per ABC approach is summarised below.
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Sushma 
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