Alex Erwin started Inter wood, a niche furniture brand,

Alex Erwin started Inter wood, a niche furniture brand, 10 years ago. He ran the business as a sole proprietorship. While he has 50 skilled carpenters and 5 salesmen on his payroll, he has been taking care of the accounting by himself. Now, he intends to offer 40% of the ownership to public in next couple years, and is willing to make changes and has hired you as the management accountant to organize and improve the accounting systems.Inter wood’s total budgeted manufacturing overheads cost for the current year is $5,404,639 and budgeted total labor hours are 20,000. Alex applied traditional costing method during all of the 10 years period, and based the per-determined overhead rate on total labor hours.Inter wood’s sofa range includes the 2-set, 3-set and 6-set options. Platinum Interiors recently placed an order for 150 units of the 6-set type. The order is expected to be delivered in 1 month time. Since it is a customized order, Platinum will be billed at cost plus 25%.You are not a fan of traditional product costing system. You believe that the benefits of activity-based costing system exceeds its costs, so you sat down with Aaron Mason, the chief engineer, to identify the activities which the firm undertakes in its sofa division. Next, you calculated the total cost that goes into each activity, identified the cost driver that is most relevant to each activity and calculated the activity rate. The results are summarized below:ActivityA (in $)Relevant Cost DriverB/B (in $)Production of components2,313,132Machine hours25,00093Assembly of components1,231,312Number of labor hours20,00062Packaging213,123Units5,00043Shipping231,230Units5,00046Setup costs34,243Number of setups240143Designing123,132Designer hours1,000123Product testing24,234Testing hours50048Rent1,234,233Labor cost$1,645,64475%Once the order was ready for packaging, Aaron gave you a summary of total cost incurred and a statement of activities performed (also called the bill of activities) as shown below:Order No: 15X2013Customer: Platinum InteriorsUnits: 150Type: 6 unitAmounts in $Cost of direct materials25,000Cost of purchased components35,000Labor cost15,600ActivityRelevant Cost DriverActivity UsageProduction of componentsMachine hours320Assembly of componentsNumber of labor hours250PackagingUnits150ShippingUnits150Setup costsNumber of setups15DesigningDesigner hours70Testing Testing hours22RentLabor cost4500Part ACalculate the total cost of the order and the invoice value of the order based on traditional costing system.