Question 3 - Week 6 (7 marks)

Lyon Productions manufactures two products, Chevalier and Dame. Estimates for the companys products for next year are provided below:

Estimated Production Volume

Direct Material Cost Direct Labour per Unit

Chevalier

6 000

$30 / unit

3 hours @ $12 / hour

Dame

4 000

$50 / unit

4 hours @ $12 / hour

The companys estimated overhead of $400 000 can be identified with three major activities: order processing ($75 000), machine processing ($280 000) and product inspection ($45 000). These activities are driven by number of orders processed, machine hours, and inspection hours respectively. Estimated activity levels for the next year are as follows:

Orders Processed Machine Hours Inspection Hours

Required:

Chevalier 300

36 000

4 000

Dame Total 200 500 44 000 80 000 16 000 20 000

Assuming that Lyon Productions uses activity-based costing (ABC) to apply overhead to production, calculate the total cost per unit for Chevalier and Dame if the estimated production volume is attained. (7 marks)