Industrial Fire (IF) Corporation is a manufacturer of computer chips based in Charlottetown. It manufactures two types of computer chips, CS1 and CS2. The costs of manufacturing each CS1 chip, excluding rework costs, are direct materials, $65; direct manufacturing labour, $18; and manufacturing overhead, $48. Defective units are sent to a separate rework area. Rework costs per CS1 chip are direct materials, $18; direct manufacturing labour, $9; and manufacturing overhead, $20.

In August 2018, IF manufactured 1,700 CS1 chips and 1,400 CS2 chips; 98 of the CS1 chips and none of the CS2 chips required rework. IF classifies 78 of the CS1 chips reworked as normal rework caused by inherent problems in its production process that coincidentally occurred only during the production of CS1. Hence, the rework costs for these 78 CS1 chips are normal rework costs not specifically attributable to the CS1 product. IF classifies the remaining 20 units of CS1 chips reworked as abnormal rework. IF allocates manufacturing overhead on the basis o machine-hours required to manufacture CS1 and CS2. Each CS1 and CS2 chip requires the same number of machine-hours