See, I told you we made a good decision by introducing the Business and Deluxe 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 echo her enthusiasm. Linda, 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 Deluxe chairs made money. 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 follows during the last two years:

	Regular			Standard			Business			Deluxe
2021		25,000			25,000
2022		20,000			20,000			5,000			5,000
Price (2022)	$	37.8		$	45.8		$	70.8		$	98

BCC 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	$	584,000	(206,000 machine-hours)
Assembly department	$	641,200	(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			Deluxe
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)	$	18		$	25.8		$	37.8		$	42.8

Required:

1. Compute the profitability of each type of chair (please show all the computational steps).

2. In late 2022, Linsey Lindsay, the chief cost accountant, attended a week-long workshop entitled Advanced Cost Management Methods offered at a local university. One particular concept she caught on to was activity-based costing, which she decided to implement. She found that the total overhead of $1,225,200 consisted of five cost items and six different activities. Upon further analysis, she determined the proportions in which four of the five cost items were consumed by the six activities (facility-level costs are not to be allocated to the activities).

	Indirect Labour Salaries and Benefits ($274,000)				Engineering Salaries and Benefits ($334,000)				Utilities ($216,000)				Depreciation ($169,200)				Administrative Costs ($232,000)
Machining		20	%			10	%			35	%			40	%			N/A
Assembly		20	%			10	%			40	%			40	%			N/A
Machine setup		40	%															N/A
Engineering						45	%											N/A
Production planning						25	%											N/A
Maintenance		20	%			10	%			25	%			20	%			N/A
		100	%			100	%			100	%			100	%

She further determined the following consumption of resources across the four products:

	Regular				Standard				Business				Deluxe				Total
Number of batches		8				10				20				25				63
Setup time per batch		1.5				1.0				2.0				3.0
Machine-hours		91,000				82,000				18,000				15,000				206,000
Labour-hours		130,000				150,000				30,000				39,000				349,000
Maintenance calls		40				32				20				18				110
Maintenance-hours		236				210				198				176				820
Engineering-hours		166				156				112				136				570

2-a. Prepare a table listing the different activities, costs associated with each activity, the appropriate allocation base and the allocation rate for each activity.

2-b. Using the above activity rates, assign the costs to each of the four types of chairs and determine their profitability. For simplicity, assign the facility-level costs equally among the four products.

3. This part of the question is not part of your Connect assignment.

Required:

1. Compute the profitability of each type of chair (please show all the computational steps).

2. In late 2022, Linsey Lindsay, the chief cost accountant, attended a week-long workshop entitled Advanced Cost Management Methods offered at a local university. One particular concept she caught on to was activity-based costing, which she decided to implement. She found that the total overhead of $1,225,200 consisted of five cost items and six different activities. Upon further analysis, she determined the proportions in which four of the five cost items were consumed by the six activities (facility-level costs are not to be allocated to the activities).

	Indirect Labour Salaries and Benefits ($274,000)				Engineering Salaries and Benefits ($334,000)				Utilities ($216,000)				Depreciation ($169,200)				Administrative Costs ($232,000)
Machining		20	%			10	%			35	%			40	%			N/A
Assembly		20	%			10	%			40	%			40	%			N/A
Machine setup		40	%															N/A
Engineering						45	%											N/A
Production planning						25	%											N/A
Maintenance		20	%			10	%			25	%			20	%			N/A
		100	%			100	%			100	%			100	%