Question
Comfort Company produces leather office chairs. The standard cost per chair is as follows: Direct materials$35Direct labour15Variable overhead (2 machine-hours at $4.00)*8Fixed overhead (2 machine-hours
Comfort Company produces leather office chairs. The standard cost per chair is as follows:
Direct materials$35Direct labour15Variable overhead (2 machine-hours at $4.00)*8Fixed overhead (2 machine-hours at $8.00)*16Total standard cost per chair$74
*Overhead rates are based on a denominator activity level of 30,000 machine-hours.
During 2017, Comfort Company produced and sold 12,000 office chairs. Management believes that the denominator level of activity represents 75% of theoretical capacity and 80% of practical capacity.
Required:
1.Calculate the total overhead costs at the following levels of activity: theoretical, practical, denominator, and actual (2017).
2.Assuming Comfort Company can sell all of the chairs it can produce for $100 per unit, calculate the opportunity loss of producing 12,000 chairs in 2017 compared to the following capacity utilization alternatives: theoretical, practical, and denominator.
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