Ayr Co. manufactures residential and commercial security alarms. The company has designed a new residential alarm that can connect to home Wi-Fi systems. This feature reduces the cost of installation and avoids the need for conventional telephone access to the system. Because it is advanced and innovative, the system has no direct competitors and, therefore, Ayr plans to use a cost-based price for this new product. The company policy is to mark up total manufacturing cost by 30% to set the product price.

Ayr is organized into three departments: stores, production, and assembly. The fixed cost structure in each department is as follows:

Fixed Practical Average Planned Department Cost driver manufacturing capacity activity level activity level overhead Stores Materials cost $ 200,000 $ 1,200,000 $ 900,000 $ 1,000,000 Production Machine hours 1,200,000 10,000 7,000 8,000 Assembly Labour hours 450,000 8,000 5,000 7,000 O