CHECK FIGURE (2b) Deluxe chair, gross margin = 3% of sales "Sec, I told you we made a good decision by introducing the Business and Deluxc chairs. Look at the profits generated by the two chairs that we are selling at a premium." These were the words of Linda Badger, CEO of Badger Chair Company (BCC). However, Steve Radcliffe, the VP of operations, did not ccho her enthusiasm. "Linda, I must say my people on the shop floor are not too happy with the accounting report Thcy arc still unable to believe that the Business and Deluxe chairs made moncy. According to them the production of these chairs created nothing but problems." Badger Chair Company makes four different types of chairs: Regular, Standard, Business, and Deluxe. The latter two types of chairs were introduced in 2022. The production and sales of each type of chair were as foll ws during the last years: Regular Standard Business Delupe 2021 25.000 25 000 20 000 20,000 5.000 5.000 $44 $69 $89 Price (2022) BCC uses a normal costing system wherein it traces direct material and direct labour costs to the individual products and allocates overhcad costs by applying predetermined departmental overhead rates to the actual volume of the allocation bese pertaining to cech department. For 2012, the following overhead costs were estimated in cach of the two departments Estimated Overhead Cost and Activity Level Machining department $548,000 (206,000 machine-hours) Assembly department $499.000 (349,000 direct labour-hours) Consider the following information regarding the actual consumption of resources by cach of the four products in 2022: Regular Standard Business Deluxe Machine-hours 91.000 82.000 18000 15.000 Direct labour-hours 130.000 150.000 30,000 39.000 $15 Prime costs (per unit) $23 $ 35 Required: 1. Compute the profitability of cach type of chair (plcase show all the computational steps). Is there a reason for Linda Badger to be excited about the new chairs? Bricfly explain. 2. In late 2021. Linser Lindsay, the chief cost accountant, attended 2 week-long workshop entitled 'Advanced Cost Manegement Methods offered at a locel university. One particular concept she caught on to was activity-based costing, which she decided to implement. She found that the total overhead of $1.047.000 consisted of five cost items and six different activities. Upon further analysis, size determined the proportions in which four of the five cost items were consumed by the six activities (facility-levei costs are not to be allocated to the activities). Indirect Labour Salaries and Benefits ($238,000) Engineering Salarles and Benefits ($298,000) Utilities ($180,000) Depreciation ($135,000) Costs ($196,000) Machining 2096 (1096 35% 40% NA Assembly 20% 1095 4096 4096 N/A Machine 40% N/A setup Engineering 459 N/A Production NA planning Maintenance 2096 1096 2596 2096 NA 10098 10096 100 She further determined the following consumption of resources across the four products: Regular Sitandard Business Delupe Total 20 25 63 Number of batches 2.0 3.0 berbatch Nachine-hours 91.000 32 000 13.000 15 000 206 000 130.000 1150 000 30.000 Labouzlours 89.000 349.000 20 110 Maintenance de M u 63 Setup time per batch 1.0 2.0 3.0 Machine-hours 91.000 82,000 18.000 15.000h 206.000 Labour-hours 130.000 150.000 30,000 39,000 349.000 Maintenance calls Maintenance-hours Engineering-hours 2. Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for cach activity. b. Using the above activity rates, assign the costs to cach of the four types of chairs and determine their profitability: For simplicity, assign the facility-level costs equally among the four products. 3. Do you agree with Radcliffe? Please support your answer with appropriate explanation