Fonda Company Has a Traditional,unit-Based Cost System $\begin{array}{llr} \text {Direct labour } &\$16\\ \text { Variable overhead } &8\\ \text {Direct materials } &26\end{array}$

Fonda Company has a traditional,unit-based cost system.The Calgary 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 labour time and materials.The plant has used direct labour 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 labour 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 labour hours
The variable rate of $50 is broken down as follows:
$\begin{array}{llr} \text {Direct labour } &\$16\\ \text { Variable overhead } &8\\ \text {Direct materials } &26\end{array}$
Because of competitive pressures,product engineering was asked to redesign products to reduce the total cost of manufacturing.Using the above cost relationships,product engineering adopted the strategy of redesigning to reduce direct labour content.As each design was completed,an engineering change order was cut,triggering a series of events such as design approval,vendor selection,bill of materials update,redrawing of schematic,test runs,changes in setup procedures,development of new inspection procedures,and so on.
After one year of design change,the normal volume of direct labour was reduced from 125,000 hours to 100,000 hours,with the 100,000 units being built.Although each product differs in its labour content,the redesign efforts reduced the labour content for all products.On average,labour content per unit of product dropped from 1.25 hours per unit to 1 hour per unit.Fixed overhead,however,increased from $5,000,000 to $6,000,000.
a.Using normal volume,compute the manufacturing cost per labour hour before the design changes.What is the cost per unit of an "average" product?
b.Using the normal volume after the one year of design changes,compute the manufacturing cost per hour.What is the cost per unit of an "average" product?