Determine the unit gross profit for the regular chair

Reference no: EM133654342

Case: Norwegian 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 $65.00 $105.00
Direct labour ($20 per hour) 10.00 20.00
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 for the year follows:
Materials handling $ 300,000
Setups 400,000
General factory overhead 500,000
Total $ 1,200,000
The following table presents the activity levels that relate to the overhead costs:

Cost Driver Regular Deluxe Total
Number of parts 600,000 900,000 1,500,000
Number of setups 75 50 125
Direct labour-hours 45,000 80,000 125,000

The market price for the regular chairs is $ 104 with expected sales of 40,000 units. The company expects to sell 25,000 deluxe chairs at a selling price of $170 per unit.

Required:

Determine the unit gross profit for the regular chair and the deluxe chair using both traditional and activity-based costing methods

Reference no: EM133654342

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