Reference no: EM132194024
Question - Finland furniture manufacturing makes two models of office chairs: regular and deluxe. Summary data for the two products showed the following:
Unit costs regular deluxe
Direct materials $65 $105
Direct labour ($20 per hour) 10 20
Manufacturing overhead 4.80 9.60
Under the company's current costing, manufacturing overhead is allocated on the basis of direct labour hours. The overhead of the year follows:
Materials handling $300000
Setups 400000
General factory overhead 500000
Total $1200000
The following table presents the activity levels that relate to the overhead costs:
Cost driver regular deluxe total
#of parts 600000 900000 1500000
# of setups 75 50 125
direct labour hours 45000 80000 125000
The market price for the regular chairs is $104 with expected sales of 40000 units. The company expects to sell 25000 deluxe chairs at a selling price of $170 per unit.
Required - Determine the unit gross profit for the deluxe chair using both traditional and activity based costing methods.