Question

Royal Company manufactures two products, Tables and Seats. Both products are manufactured in a single factory. There is $1,600,000 of factory overhead budgeted for the period. Royal Company plans to manufacture 1,000 units of each product. Assume tables and seats both require 10 direct labor hours per unit to manufacture. Required:

1. Determine the total cost for a table and for the seat.

2. Based on that determine the selling price for the table and for the seat, when company wants to earn 40% of profit margin on total cost..

Answer 1

1. Total factory overhead= $1,600,000

Tables= 1000 units will be prepared

10 direct labor hours are required for each unit of table

Total direct labor hours are required for table= 1000*10=10000 labor hours

Seats= 1000 units will be prepared

10 direct labor hours are required for each unit of Seats

Total direct labor hours are required for Seats= 1000*10=10000 labor hours

Total factory overhead/ total direct labor hours for tables and seats

Total factory overhead=$1,600,000

Total direct labor hours for tables and seats= 10000+10000=20000 hours

Cost her hour=$1,600,000/20000=$80

Total cost for a table = Cost per hour* required direct labor hour per unit

                                                                =$80*10= $800 per unit

Total cost for a seat= Cost per hour* required direct labor hour per unit

                                                                ==$80*10= $800 per unit

Total cost for both product=$800+$800= $1600

2. Selling price for the table= cost +40%

=$800+40%=$1120

Selling price for the seat= cost +40%

=$800+40%=$1120

                Total selling price of both product=$1220+1120=$2240