Reference no: EM13164285

Comfy Chair Company makes two types of chairs, a lounge chair and a folding beach chair. The company uses a job-order costing system and applies overhead on the basis of direct labor hours. Comfy Chair expects to produce 40,000 lounge chairs and 100,000 beach chairs next year.

Comfy Chair has been considering changing to an activity based costing system. The company has reported the following results from the first-stage cost allocations for a year's production:

                                                                            Overhead Cost                                 Activities by Product

Activity                                     Assigned                       Lounge Chairs                            Beach Chairs

Labor related                             $300,000                       100,000 DLHrs                          200,000 DLHrs

Machine related              $450,000                       30,000 MHrs                             60,000 MHrs

Machine setups                           $730,000                       4,000 Setups                              1,000 Setups

Order processing                        $600,000                       4,500 Orders                              1,500 Orders

General factory                            $500,000

Direct Labor                                                                  $2,000,000 DL$                         $3,000,000 DL$

Direct Materials                                                             $3,200,000 DM$                        $1,000,000 DM$

a) Determine the total cost per unit for each product using traditional job-order costing. Show your work.

b) Determine the total cost per unit for each product using activity based costing. Show your work.

c) Comment on the differences between the two.