Question

Rooney Manufacturing Co. expects to make 31,700 chairs during the year 1 accounting period. The company made 3,600 chairs in January. Materials and labor costs for January were $16,700 and $25,200, respectively. Rooney produced 2,000 chairs in February. Material and labor costs for February were $8,900 and $13,400, respectively. The company paid the $729,100 annual rental fee on its manufacturing facility on January 1, year 1. The rental fee is allocated based on the total estimated number of units to be produced during the year.

Required
Assuming that Rooney desires to sell its chairs for cost plus 15 percent of cost, what price should be charged for the chairs produced in January and February? (Round intermediate calculations and final answers to 2 decimal places.)

Answer 1

Given that,

Annual rental fee = $729,100

 

January:

Material cost = $16,700

Labor cost = $25,200

Number of chairs produced = 3,600

 

February:

Material cost = $8,900

Labor cost = $13,400

Number of chairs produced = 2,000

 

Overhead absorption rate :

= Annual rental fee ÷ Budgeted production

= $729,100 ÷ 31,700

= $23 per chair

 

For January:

Total cost for January :

= Material cost + Labor cost + Overhead (Number of chairs produced × Overhead per chair)

 

=16,700+25,200+(3,600*$23 per chair)

=16,700+25,200+82,800

=124,700

 

Desired profit:

= 15% of cost

= 0.15 × $124,700

= $18,705

 

Total Value of goods = Profit + Cost

=124,700+18,705

=143,405

 

Price per chair:

= Total value ÷ Quantity sold

=143,405/3600

=$39.83 per Chair

 

For February:

Total cost for February:

= Material cost + Labor cost + Overhead (Number of chairs produced × Overhead per chair)

 

=8,900+13,400+(2000*23)

=8,900+13,400+46,000

=68,300

 

Desired profit:

= 15% of cost

= 0.15 × $68,300

= $10,245

 

Total Value of goods = Profit + Cost

=68,300+10,245

=78,545

 

Price per chair:

= Total value ÷ Quantity sold

=78,545/2000

=$39.27 per Chair

(a) $39.83 per chair

(b) $39.27 per chair