First Bjorn is examining the activities for the past year. Stylish Chairs rents a small administrative office in Melbourne's central business district (CBD) for $20,000 per year and a large warehouse in Dandenong for $30,000 per year.

The cost with staff in the administrative office in the CBD handling all the bureaucracy is $100,000 per year. Stylish Chairs has hired a firm for managing the sales and this firm charges a commission of $70 for each completed sale. The invoicing system used by Stylish Chairs is outsourced and for each sale completed the firm charges $1. The administrative office had in the past year other miscellaneous costs of $4,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come.

A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Dandenong. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the past year and is expected to remain the same amount for years to come.

Stylish Chairs has a contract with a delivery firm for delivering the copies of the 18th-century rococo chair to their clients, but Bjorn is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding past years quarterly costs:

Table 1 Quarterly delivery costs

Quarter	Delivery Cost	Units Delivered
First	$360	125
Second	$400	150
Third	$340	125
Quarter	$300	100
Total	$1,400	500

Below is a table listing all the material used during the past year to manufacture 500 copies of 18th century rococo chairs and the costs incurred. There was no stock or work in process in the beginning or end of the year.

Table 2 Material costs

Material	Quantity	Total Cost
Fabric	1,500 m2	$3,000
Timber	6,000 Units	$36,000
Foam	500 Kilograms	$150
Button stud	4,500 Units	$450
Varnish	500 Litres	$10,000
Bolt	5,000 Units	$500

The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $35 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per chair. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the chair with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per chair. The final stage of manufacturing is varnishing the chair. A casual staff is paid $35 per hour for varnishing the chairs and this task takes 2 hours.

In the current year, Anni-Frid and Benny were approached by Agnetha who wants to buy 20 copies of the 18th- century rococo chair. Anni-Frid and Benny want to know the manufacturing costs for this job, considering Stylish Chairs has a production budget of 600 chairs for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool) Stylish Chairs uses the direct labour-hours (i.e., cost-allocation base), but Bjorn is struggling with job costing in manufacturing and has asked for your help.

Required

Material	Quantity	Total Cost
Fabric	1,500 m2	$3,000
Timber	6,000 Units	$36,000
Foam	500 Kilograms	$150
Button stud	4,500 Units	$450
Varnish	500 Litres	$10,000
Bolt	5,000 Units	$500

1. a) Calculate the direct manufacturing costs, the indirect manufacturing costs, and the total manufacturing costs of this job. (Job costing in manufacturing, Chapter 3, 10 marks)

2. b) Considering the current cost-allocation base of direct labour-hours and using a direct allocation method, which of the three activities (assembling, woodworking, and varnishing) has the higher allocated manufacturing overhead and why? (Direct allocation method, Chapter 5, 10 marks)

Question 2

Bjrn wants to propose to Anni-Frid and Benny a new product for Stylish Chairs, the 21st-century chair. This new product is the standard product manufactured by Stylish Chairs (i.e., a copy of the 18th-century rococo chair) with an extra coat of fancy varnish. Applying this extra coat of fancy varnish takes more 2 hours of direct manufacturing activity (varnishing) for each chair and 1 litre of fancy varnish is used for each chair. This fancy varnish is 50% more expensive than the normal varnish used for the standard product. Whereas a copy of the 18th-century rococo chair is sold by $1,000, Bjrn says the 21st-century chair could be sold by $1,250 and Stylish Chairs would make more money with this new product.

Required

Anni-Frid and Benny are sceptical about this new product and have asked you to crunch the numbers and show whether it is worth processing the standard product into this new product, the 21st-century chair, and selling it for $1,250. (Sell or process further, Chapter 6, 10 marks)