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Determine the unit gross profit for the deluxe chair

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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.

Reference no: EM132194024

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