Activity-Based Costing: Customer Group Cost Analysis Lenngton Furniture, Inc. (LFD) manufactures bedroom furniture in sets (a set includes a dresser, two queen-size beds, and one bedside table) for use in motels and hotels. LFI 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 value 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 low-cost 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. LFI 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 change. LFI has used a volume- based rate based on direct labor-hours for some time. Direct labor cost is $12 per hour. Materials handling Product scheduling Setup labor Automated machinery Finishing Pack and ship Budgeted Cost $ 349,600 160,000 216,000 1,750,000 619,500 290,400 $3,385,500 $5,000,000 Cost Driver Number of parts Number of production orders Number of setups Machine-hours Direct labor-hours Number of orders shipped General, selling, and adm.costs