Exercise 14.16

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 quantity.

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.

Required:

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.