4) 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

a) 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.

5) 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. (15 marks)

b) Predict the total processing cost if 19,000 units are produced. (5 marks)