Activity$-$Based Costing; Customer Group Cost Analysis Franklin Furniture Inc. $($FFI$)$ manufactures bedroom furniture in sets $($a set includes a dresser, two queen$-$size beds, and one bedside table$)$ for use in motels and hotels. FFI has three customer groups, which it calls the value, quality, and luxury groups. The value products are targeted to low$-$price motels that are looking for simple furniture, while the luxury furniture is targeted to the very best hotels. The quality line is attractive to a variety of hotels and motels that appreciate the combination of quality and value. Currently there has been a small increase in the quality and value lines, and an appreciable increase in demand in the luxury line, reflecting cyclical changes in the marketplace. Luxury hotels are now in more demand for business travel, while a few years ago, the value segment was the most popular for business travelers. FFI wants to be able to respond to the increased demand with increased production but worries about the increased production cost and about price setting as its mix of customers and production changes. FFI has used a volume$-$based overhead allocation rate based on direct labor hours for some time. Direct labor cost is $$15$ per hour. The budgeted production data for the three product lines follow.

Required

Determine the cost per set and the total production cost of each of the three customer groups using activity$-$based costing.

Determine the production cost for each of the three customer groups using FFI's current volume$-$based approach.

Compare the two approaches and discuss the strategic and competitive issues of using each of the two methods.

The activity usage data given in the problem reflects current usage of the various cost drivers to manufacture the firm's product lines.

Suppose you are given the following information regarding the firm's practical capacity for each of these activities, as follows: Required

Determine the cost per set and the total production cost of each of the three customer groups using activity$-$based costing.

Determine the production cost for each of the three customer groups using FFI's current volume$-$based approach.

Compare the two approaches and discuss the strategic and competitive issues of using each of the two methods.

The activity usage data given in the problem reflects current usage of the various cost drivers to manufacture the firm's product lines.

Suppose you are given the following information regarding the firm's practical capacity for each of these activities, as follows:

Compute the new activity rates using practical capacity and comment on how you would use this additional information for costing the

firm's products and assisting in strategic planning.

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$\backslash$table$[[,$Budgeted Cost,Cost Driver$],[$Materials handling,$$349,600,$Number of parts$],[$Product scheduling,$160,000,$Number of production orders$],[$Setup labor,$216,000,$Number of setups$],[$Automated machinery,$1,750,000$ Machine$-$hours,$],[$Finishing$,619,500$ Direct labor hours,$],[$Pack and ship,$290,400$ Number of orders shipped,$],[,$$$3,385,500,],[$General$,$ selling, and adm. costs,$$5,000,000,]]$

The budgeted production data for the three product lines follow.

$\backslash$table$[[$Product Lines,Value,Quality,Luxury$],[$Sets produced,$15\mathrm{.}000,5\mathrm{.}000,600]]$

Product Lines Value Quality Luxury

Sets Produced $15,0005,000600$

Price $$650$ $$900$ $$1,200$

DM Cost$/$Set $$80$ $$50$ $$110$

Number of Parts$/$Set $3050120$

DL Hours$/$Set $457$

Machine Hours$/$set $3715$

Production Orders $5070200$

Production Setups $205050$

Orders Shipped $1,0002,000300$

Number of Inspections $2614$

$1.$ Determine the cost$/$set and the total production cost of each of the $3$ customer

groups using activity based costing.

$2.$ Determine the production cost for each of the $3$ customer groups using FFI's

current volume based approach.

$3.$ Compare the $2$ approaches and discuss the strategic and competitive issues

of using each of the two methods.

$4.$ The activity usage data given in the problem reflects current usage of the

various cost drivers to manufacture the firm's product lines. Suppose you are

given the following information regarding the firm's practical capacity for each

of these activities, as follows:

Cost Driver Practical Capacity

Number of Parts $990,000$

Number of Production Orders $800$

Number of Setups $200$

Machine Hours $100,000$

Direct Labor Hours $123,900$

Number of Orders Shipped $5,000$