Q*/*

**See, I told you we made a good decision by introducing the Business and Luxury chairs. Look at the profits generated by the two chairs that we are selling at a premium.** These were the words of Jane Roe, CEO of Company X. However, John Doe, the VP of operations, did not echo her enthusiasm. Jane, I must say my people on the shop floor are not too happy with the accounting report. They are still unable to believe that the Business and Luxury chairs made money. According to them the production of these chairs created nothing but problems.

Company X makes four different types of chairs: Regular, Standard, Business, and Luxury. The latter two types of chairs were introduced in 2022. The production and sales of each type of chair were as follows during the last two years:

	Regular	Standard	Business	Luxury
2021	25,000	25,000
2022	20,000	20,000	5,000	5,000
Price (2022)	$36.3	$44.3	$69.3	$89.3

COMPANY X uses a normal costing system wherein it traces direct material and direct labour costs to the individual products and allocates overhead costs by applying predetermined departmental overhead rates to the actual volume of the allocation base pertaining to each department. For 2022, the following overhead costs were estimated in each of the two departments:

Estimated Overhead Cost and Activity Level
Machining department	$554,000 (206,000 machine-hours)
Assembly department	$516,700 (349,000 direct labour-hours)

Consider the following information regarding the actual consumption of resources by each of the four products in 2022:

	Regular	Standard	Business	Luxury
Machine-hours	91,000	82,000	18,000	15,000
Direct labour-hours	130,000	150,000	30,000	39,000
Prime costs (per unit)	$15.3	$23.5	$35.5	$40.5

Required:

1. Compute the profitability of each type of chair (please show all the computational steps). Is there a reason for Jane Roe to be excited about the new chairs? Briefly explain.

	Regular	Standard	Business	Luxury	Overall
Sales (units)
Price
Prime costs
Sales revenue
Prime costs
Overhead costs
Total costs
Gross Margin
Gross Margin/unit
Gross Margin %