5-20A (Algo) Cost management with an ABC system LO 5-3 Franklin Chairs, Inc. makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company's accountant prepared the following cost data for Ms. Silva: Direct Cost per Unit Direct materials Direct labor Model Diamond (D) $21.00 per unit $17.60/hour x 2.00 hours production time Model Gold (G) $9.60 per unit $17.60/hour x1.00 hour production time Category Unit level Batch level Product level Facility level Total Cost Driver Number of units Number of setups Estimated Cost $ 272,600 783,000 828,000 486,000 $2,369,600 Number of TV commercials Number of machine hours Use of Cost Driver D: 18,000 units; G: 29,000 units D: 110 setups; G: 180 setups D: 7; G: 16 D: 2,300 hours; G: 3,100 hours The market price for office chairs comparable to Model Diamond is $115 and to Model Gold is $76. Required a. Compute the cost per unit for both products. b. Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 164 units of Model Diamond per batch and 161 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion. (For all requirements, round intermediate calculations and final answers to 2 decimal places.) Type of Product Cost per Unit a. Model Diamond Model Gold b. Model Diamond Model Gold