1. A company manufactures household items sold at trade shows. The items, classified as either Tables or Frames, are manufactured on a common assembly line. Although different direct materials are used, the direct labour cost is the same for each product line.

The plant-wide rate for allocating manufacturing overhead to its products is no longer acceptable. The production manager has heard about activity-based costing and has assembled some information for use in changing the cost system to a cost driver concept.

With the help of the accounting department, the manager has been able to establish the following relationships between production costs and some of the indirect manufacturing activities for July, along with the production data for the two product lines:

activity	Cost driver	Allocation rate	tables	frames
Material handling	Number of parts	$2.50 per part	2,000	1,300
Machining	Machine hours	$15.00 per hour	205	300
Assembly	Units began	$1.60 per unit	1,000	1,300
Inspection	Number tested	$2.00 per unit	100	1,200

Direct costs:

	Tables	Frames
Labour	$6,000	$6,000
Materials	$7,200	$4,600

Using activity-based costing determine the total production cost of each of the two product lines for July and the cost

per unit, assuming all units started were completed.

2. Below are the processing costs of Darnell Products observed over the last 10 months:

Month	Units Produced	Processing Cost
1	7,500	$44,000
2	11,000	60,000
3	14,500	58,770
4	5,500	20,000
5	9,000	47,000
6	8,500	52,000
7	3,500	25,000
8	4,000	21,000
9	11,500	52,000
10	6,000	41,000

a. Use the high low method to determine the variable cost per unit and fixed cost per month. Express your results in the form of a linear equation y = a + bx.

b. Predict the total processing cost if 19,000 units are produced.