Badger Chair Company makes four different types of chairs: Regular, Standard, Business, and Deluxe. The latter two

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Question:

Badger Chair Company makes four different types of chairs: Regular, Standard, Business, and Deluxe. The latter two types of chairs were introduced in 2022. The production and sales of each type of chair were as follows during the last two years:

	Regular		Standard		Business		Deluxe
2021		25,000		25,000
2022		20,000		20,000		5,000		5,000
Price (2022)	$	36.2	$	44.2	$	69.2	$	89.2

BCC uses a normal costing system wherein it traces direct material and direct labour costs to the individual products and allocates overhead costs by applying predetermined departmental overhead rates to the actual volume of the allocation base pertaining to each department. For 2022, the following overhead costs were estimated in each of the two departments:

Estimated Overhead Cost and Activity Level
Machining department	$	552,000	(206,000 machine-hours)
Assembly department	$	513,100	(349,000 direct labour-hours)

Consider the following information regarding the actual consumption of resources by each of the four products in 2022:

	Regular		Standard		Business		Deluxe
Machine-hours		91,000		82,000		18,000		15,000
Direct labour-hours		130,000		150,000		30,000		39,000
Prime costs (per unit)	$	15.2	$	23.2	$	35.2	$	40.2

Required:

1. Compute the profitability of each type of chair (please show all the computational steps).

2. In late 2022, Linsey Lindsay, the chief cost accountant, attended a week-long workshop entitled “Advanced Cost Management Methods” offered at a local university. One particular concept she caught on to was activity-based costing, which she decided to implement. She found that the total overhead of $1,065,100 consisted of five cost items and six different activities. Upon further analysis, she determined the proportions in which four of the five cost items were consumed by the six activities (facility-level costs are not to be allocated to the activities).

	Indirect Labour Salaries and Benefits ($242,000)			Engineering Salaries and Benefits ($302,000)			Utilities ($182,000)			Depreciation ($139,100)			Administrative Costs ($200,000)
Machining		20	%		10	%		35	%		40	%		N/A
Assembly		20	%		10	%		40	%		40	%		N/A
Machine setup		40	%											N/A
Engineering					45	%								N/A
Production planning					25	%								N/A
Maintenance		20	%		10	%		25	%		20	%		N/A
		100	%		100	%		100	%		100	%

She further determined the following consumption of resources across the four products:

	Regular		Standard		Business		Deluxe		Total
Number of batches		8		10		20		25		63
Setup time per batch		1.5		1.0		2.0		3.0
Machine-hours		91,000		82,000		18,000		15,000		206,000
Labour-hours		130,000		150,000		30,000		39,000		349,000
Maintenance calls		40		32		20		18		110
Maintenance-hours		236		210		198		176		820
Engineering-hours		166		156		112		136		570

2-a. Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity.

2-b. Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products.