Question

Hairco makes and sells hair products at an awesome salon. The hair products are made of aloe, gel, and tea tree oil. Given the following information about Hairco’s January operations, answer the questions below. Budgeted MOH: $800 per month. Budgeted Machine Hours (Hairco’s chosen allocation base for MOH): 200.

Inventory Balances 1/1 1/31

Hair Products $ 1000 1200

Aloe 50 65

Partly-mixed hair products 400 385

Gel 300 280

Tea Tree Oil 450 620

During January, Hairco bought 200 ounces of aloe at $0.75 per ounce, 6000 ounces of gel at $0.50 per ounce, and 800 ounces of tea tree oil for $3 an ounce. The machines were used 190 hours. It also incurred the following costs.

Depreciation on machines $30 per month

Depreciation on tools $10 per month

Cashier in store 40 hours a week at $12 per hour for 4 weeks

Rent on factory $150 per month

Factory custodian 10 hours per week at $8 per hour for 4 weeks

Utilities for factory $200 per month + $0.05 per kilowatt hour.

Shampoo mixer 40 hours per week (4 weeks) at $10 per hour

Categorize the inventory items listed above.

Categorize each of the costs listed above as Direct Materials, Direct Labor, Manufacturing Overhead or Period (Nonmanufacturing) cost AND as fixed or variable.

Hairco sold $15,000 worth of hair products in January. Create an income statement for the month. Like many companies, Hairco uses actuals for DM & DL, and the Budgeted MOH rate to calculate MOH.

In March, Hairco gets its utility bill (2000 kilowatt hours were used) for January, the last of its MOH costs for that month. How much is Hairco’s MOH over or under-applied? What are its options for disposing of this amount?

Show all these.

Answer 1

Inventory Item	Category
Hair Products	Finished goods
Aloe	Raw material
Partly-mixed hair products	Work in process
Gel	Raw material
Tea Tree Oil	Raw material

Cost Item	Direct Materials	Direct Labor	Manufacturing Overhead	Period (Nonmanufacturing) Cost	Fixed or Variable
Cost of Aloe	X				Variable
Cost of Gel	X				Variable
Cost of tree tea oil	X				Variable
Depreciation on machines $30 per month			X		Fixed
Depreciation on tools $10 per month			X		Fixed
Cashier in store 40 hours a week at $12 per hour for 4 weeks				X	Fixed
Rent on factory $150 per month			X		Fixed
Factory custodian 10 hours per week at $8 per hour for 4 weeks			X		Fixed
Utilities for factory $200 per month + $0.05 per kilowatt hour*			X		Variable
Shampoo mixer 40 hours per week (4 weeks) at $10 per hour			X		Fixed

*Utilities for factory is actually a mixed cost.

Note: There is no direct labor cost details provided. Kindly check as further parts will be wrong in the absence of the same information. Also provide format if any for income statement.