Fonda Company Has a Traditional, Unit-Based Cost System

Fonda Company has a traditional, unit-based cost system.The Minneapolis plant of Fonda produces eight different electronic products.Each year, 100,000 units of all products are produced.The demand for each product is about the same; thus, the average output for each product is 12,500 units.Although the products differ in complexity, each product uses about the same labor time and materials.The plant has used direct labor hours for years to assign overhead to products.The cost accounting department developed the following cost equation to help design engineers understand the assumed cost relationships.(The equation describes the relationship between total manufacturing costs and direct labor hours.The equation is supported by a coefficient of determination of 63 percent):
Y = $5,000,000 + $50X where X is the number of direct labor hours

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