Two dollars of gross margin per briefcase? That's ridiculous! roared Roy Thurmond, president of First-Line Cases, Inc. Why do we go on producing those standard briefcases when we're able to make over $11 per unit on our specialty items? Maybe it's time to get out of the standard line and focus the whole plant on specialty work.
		Standard Briefcases	Specialty Briefcases
Selling price per unit		$ 26.25	$ 42.50
Unit product cost		24.25	31.40
Gross margin per unit		$ 2.00	$ 11.10
FirstLine Cases produces briefcases from leather, fabric, and synthetic materials in a single plant. The basic product is a standard briefcase that is made from leather lined with fabric. The standard briefcase is a high-quality item and has sold well for many years.
Last year, the company decided to expand its product line and produce specialty briefcases for special orders. These briefcases differ from the standard in that they vary in size, they contain the finest leather and synthetic materials, and they are imprinted with the buyer's name.
To reduce labor costs on the specialty briefcases, automated machines do most of the cutting and stitching. These machines are used to a much lesser degree in the production of standard briefcases.
I agree that the specialty business is looking better and better, replied Beth Mersey, the company's marketing manager. And there seems to be plenty of demand out there, particularly because the competition hasn't been able to touch our price. Did you know that Velsun Company, our biggest competitor, charges over $50 a unit for its specialty items? Now that's what I call gouging the customer!

Below are the overhead costs by cost pool:

Activity Cost Pool	Activity Measure		Estimated Overhead Cost
Purchasing	Number of orders		$ 15,000
Material handling	Number of receipts		16,000
Production orders and setups	Setup-hours		6,000
Inspection	Inspection hours		18,000
Frame assembly	Assembly-hours		12,000
Machine-related	Machine-hours		32,000
			$ 99,000

Review the case project setup in the instructions. Then use the information below to prepare your submission:

A breakdown of the manufacturing cost for each of FirstLine Cases' products is given below:

Standard Briefcases Specialty Briefcases

Units produced each month 11,000 2,600

Direct materials:

Leather $ 8.00 $ 12.00

Fabric 2.00 1.00

Synthetic - 7.00

Total materials 10.00 20.00

Direct labor (0.5 DLH and 0.4 DLH @ $12.00 per DLH) 6.00 4.80

Maufacturing overhead (0.5 DLH and 0.4 DLH @ $16.50 per DLH) 8.25 6.60

Totl cost per unit $ 24.25 $ 31.40

Manufacturing overhead is applied to products on the basis of direct labor-hours. The rate of $16.50 per hour was determined by dividing the total manufacturing overhead cost for a month by the direct labor-hours:

Predetermined overhead rate = Manufacturing overhead $99,000 = $16.50 per DLH

Diect labor-hours 6,000 DLHs

The following additional information is available about the company and its products:

a. Standard briefcases are produced in batches of 1,000 units, and specialty briefcases are produced in batches of 100 units. Thus, the company does 11 setups for the standard items each month and 26 setups for the specialty items. A setup for the standard items requires one and a half hours, whereas a setup for the specialty items requires two and a half hours.

b. All briefcases are inspected to ensure that quality standards are met. Each month a total of 200 hours is spent inspecting the standard briefcases and 370 hours is spent inspecting the specialty briefcases.