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In the current year, Benny was approached by a restaurant owner who wants to purchase 75 chairs to furnish the refurbished restaurant. Benny wants
In the current year, Benny was approached by a restaurant owner who wants to purchase 75 chairs to furnish the refurbished restaurant. Benny wants to know the manufacturing costs for this job, considering Stylish Chairs has a production budget of 600 chairs for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool), Stylish Chairs uses the direct labour hours for assembling and woodwork (i.e., cost- allocation base), but Benny is struggling with how to apply job costing to the product cost of these chairs and thus has asked for your help. Required a) Regarding this specific job, calculate per unit direct manufacturing cost, the manufacturing overhead rate per allocation base, the indirect manufacturing costs, and the total manufacturing cost for this order. (Job costing in manufacturing, Chapter 3, 5 marks) b) Considering the industry benchmark for estimating the manufacturing overhead for similar jobs is calculated using 200% of direct material cost, identify whether this job has a manufacturing overhead lower or higher than a similar job using the industry benchmark. Briefly explain what could cause a difference. (Job costing in manufacturing, Chapter 3, 5 marks) c) The restaurant owner offers $800 per chair, which he claims is much higher than the product cost for these chairs. Considering the actual figures for the current year follow what has been budgeted, will Stylish Chairs be profitable if Benny uses the $800 as the selling price for all sales during the current year? Use your calculations for supporting your argument. When the selling price is higher than the per-unit product cost, will the business always be profitable? (Chapter 2, 10 marks)
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