In: Accounting
Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines. | ||
Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. | ||
Salaries-office & administrative | $520,000 | |
Salaries for factory personal | $220,000 | |
Office Rent | $125,000 | |
Factory Rent | $20,000 | |
Utilities and Misc office expenses(based on units sold) | $20,000 | |
Travel(based on units sold) | $24,000 | |
Insurance - office | $12,000 | |
Depreciation - office equipment | $40,000 | |
Depreciation for factory equipment | $70,000 | |
Advertising | $20,000 | |
Sales commissions(based on units sold) | $45,000 | |
Factory Property taxes | $10,000 | |
Maintenance for factory equipment | $80,000 | |
Direct labor hours | 16,000 | |
Material cost (wood and other) | $1,200 | |
Custom kitchen average labor hours | 20 | hours |
Labor cost per hour | $10 | |
Markup | 65% | |
Sold unit per year | 800 | units |
Total cost /unit | $1,400 | |
Selling price /unit | $2,310 | |
Income Statement | ||
Sales | $1,848,000 | |
1. Determine the cost of manufacturing one custom kitchen assuming the units given. Assume the MOH costs are allocated based on the direct labor hours per unit. Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first. You should calculate an Overhead rate. Discuss other options for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation? |
Computation of predetermined MOH rate:
Salaries for Factory Personnel | $ 220,000 |
Factory Rent | 20,000 |
Depreciation on Factory Equipment | 70,000 |
Factory Property Taxes | 10,000 |
Maintenance of Factory Equipment | 80,000 |
Total Manufacturing Overhead | $ 400,000 |
Direct Labor Hours ( DLH ) | 16,000 |
Predetermined Overhead Rate | $ 25 per DLH |
Computation of cost per custom kitchen cabinet :
Direct Material | $ 1,200 |
Direct Labor ( 20 hours x $ 10) | 200 |
Manufacturing Overhead ( 20 hours x $ 25) | 500 |
Total Cost | $ 1,900 |
Multiple product lines would impact the MOH allocation, because each product line will have different consumption of resources and activities. Some product lines may be capital intensive ( use of machine hours predominantly) and others may be labor intensive ( use of DLH predominantly). One product line may require 1 hour of inspection and quality control, whereas another may require 2 hours. Therefore, following a single plantwide MOH allocation rate would distort cost information.