please explain how you calculate question 3-5 in detail. I am having trouble especially with number 4 and how you arrive at a total of 388 for the basic model and advanced as well. thank yoh
Synthetic Fibers Inc. calculated using the cost-plus criteria specified is greater than the maximum bid of $25 per blanket allowed. Discuss the factors that management should consider before deciding whether to submit a bid at the maximum acceptable price of $25 per blanket. (CMA, adapted) Problem 15-47 Product Cost Distortion and Product Pricing: Departmen- tal Overhead Rates (LO 15-3, 15-7) Sounds Fine, Inc. manufactures two models of stereo speakers. Cost estimates for the two models for the coming year are as follows: Basic Model Advanced Model Direct material $260 $160 1, Predetermined overhead rate: $10 per direct-labor Direct labor (10 hours at $14 per hour) 140 140 Manufacturing overhead 100 100 hour Total cost $400 $500 5. Price, Advanced Model: $588.80 "The predetermined overhead rate is $10 per direct labor hour EX Each stereo speaker requires 10 hours of direct labor. Each Basic Model unit requires two hours in Department I and eight hours in Department II. Each unit of the Advanced Model requires eight hours in Department I and two hours in Department II. The manufacturing overhead costs expected during the coming year in Departments I and II are as follows: Department $8 per direct-labor hour Department I $4 per direct-labor hour Variable overhead $150,000 $150,000 Fixed overhead The expected operating activity for the coming year is 37,500 direct-labor hours in each department Required: 1. Show how Sounds Fine, Inc. derived its plantwide predetermined overhead rate of $10 per direct- labor hour 2. What will be the price of each model stereo speaker if the company prices its products at absorp- tion manufacturing cost plus 15 percent? 3. Suppose Sounds Fine, Inc. were to use departmental overhead rates. Compute these rates for Departments I and II for the coming year. Chapter 15 Target Costing and Cost Analysis for Pricing Decisions Compute the absorption cost of each model stereo speaker using the departmental overhead rates computed in requirement (3). 4. Suppose management sticks with its policy of setting prices equal to absorption cost plus 15 per- cent. Compute the new price for each speaker model using the product costs developed in require- ment (4). 5. 6. Should Sounds Fine, Inc. use plantwide or departmental overhead rates? Explain your answer. Chapter 15 Target Costing and Cost Analysis for Pricing Decisions 683 4. Compute the absorption cost of each model stereo speaker using the departmental overhead rates computed in requirement (3) Suppose management sticks with its policy of setting prices equal to absorption cost plus 15 per- cent. Compute the new price for each speaker model using the product costs developed in require- ment (4). 5. 6. Should Sounds Fine, Inc. use plantwide or departmental overhead rates? Explain your answer Case 15-48 naica Plant Marl
