Scheem Company manufactures a variety of prestige boardroom chairs. Its job-costing system uses an activity-based approach. There are two direct-cost categories (direct materials and direct manufacturing labour) and three indirect-cost pools. The cost pools represent three activity areas at the plant.

Manufacturing Activity Area	Budgeted Costs for 2019	Cost Driver used as Allocation base	Cost-allocation rate
Materials handling	R200 000	Parts	R0.25
Cutting	R2 000 000	Parts	R2.50
Assembly	R2 000 000	Direct manufacturing labour hours	R25.00

Two styles of chairs were produced in March: the executive chair and the chairman chair. Their quantities, direct materials costs, and other data for May 2019 are as follows:

	Units produced	Direct material costs	Number of parts	Direct manufacturing labour hours
Executive chair	5 000	R600 000	100 000	7 500
Chairman chair	100	R25 000	3 500	500

The direct manufacturing labour rate is R20 per hour. Assume no beginning or ending inventory.

Required:

2.1       Calculate the May 2019 total manufacturing costs and unit costs of the executive chair and the chairman chair.

2.2       The upstream activities to manufacturing (R&D and design) and the downstream activities (marketing, distribution, and customer service) are analyzed, and the unit costs in 2019 are budgeted to be:

	Upstream Activities	Downstream Activities
Executive chair	R60	R110
Chairman chair	R146	R236

Calculate the full cost per unit of each chair. (Full costs of each chair is the sum of the costs of all business functions in the value chain.)

 2.3       Compare the per-unit costs figures for the executive chair and the chairman chair calculated in 2.1 and 2.2 above. Why do these costs differ for each chair? Why might these differences be important to Scheem Company?

Answer rating: 100% (QA)

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