Question

Standard absorption cost per unit - A cost analyst for Stamper Manufacturing Co. has assembled the following data about the Model 24 stamp pad:

- The piece of sheet metal from which eight pad cases can be made costs $0.14.
- This amount is based on the number of sheets in a 3,000-pound bundle of sheet metal, which is the usual purchase quanity.
- The foam pad that is put in the case costs $0.02, based on the number of pads that can be cut from a large roll of foam.
- Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 1,800 pads by two workers in an eight-hour shift. The standard direct labor pay rate is $11 per hour.
- Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $16 per direct labor hour, of which $7 per hour is fixed manufacturing overhead.

a. calculate the standard absorption cost of a package of 12 stamp pads

b. Stamper Manufacturing Co.'s, management is considering a special promotion that would result in increased sales of 2,000 packages of 12 pads per package. Calculate the cost per package that is relevant for this analysis.

Answer 1

ANSWER

	Direct Material	Per Pad
	= $0.14 / 8 pads	0.0175
	Foam Pad	0.0200
	Direct labor	0.0978
	= ( 2 Workers x 8 hours x $ 11 per hour) /1800 pads
	Variable Manufacturing Overhead	0.0800
	= (9 per hour x 2 workers x 8 hours) / 1800 pads
	Fixed Manufacturing Overhead	0.0622
	= (7 per hour x 2 workers x 8 hours) / 1800 pads
	Total Cost per pad	$    0.2775
a)	Cost of Producing 12 stamp pads
	= 12 x 0.2775	$    3.3300
b)	Relevant Cost per pad
	= Total Cost - Fixed Manufacturing Overhead
	= 0.2775 - 0.0622
	= 0.2153
	Relevant Cost of 12 Pad Package
	= 0.2153 x 12
	= 2.5836

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