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:

Tables

Allocation Rate

Activity

Number of parts

Cost Driver

$1.00 per part

Machine hours

Units began

Number tested

$15.00 per hour

$1.60 per unit $2.00 per unit

2,000

205

1,000

100

1,300

300

1,300

1,200

Frames

Material handling

Machining

Assembly Inspection

Direct costs:

Labour

Materials

Tables

$12,000

$5,200

Frames

$12,000

$2,600

Submission Instructions:

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.