Pluton makes particular plastics for sale to the public and the government. Basic cost data for a 100-pound drum of one particular product called Xentra appears below:     Qty Cost Chemical Xeta, gals 15 $ 25.00   Chemical Thenta, gals 35 $ 27.50   Base material, pound 20 $ 1.00   100-lb lined drum 1 $ 51.83    Variable factory overhead is estimated to be $1,200,000 per month, when 1,000,000 pounds of various products are produced. The plant employs 20 chemical workers who typically work 175 hours each per month and are paid $24 per hour. Other workers are classified as indirect and are included in fixed overhead. The highly automated plant typically runs 21,000 machine hours per month. The preparation of one 100-pound batch of Xentra needs ten minutes of direct labor and 75 minutes of machine time. Fixed manufacturing overhead totals $3,500,000 per month. Forty percent of the fixed manufacturing overhead is labor-related costs and the balance is machine-related costs.  

 

1. Assuming normal production levels, what is the direct materials and direct labor cost per drum?

 

2. Assuming normal production levels, what is the amount of direct labor and overhead per drum?

 

3. Assuming normal production levels, what is the full cost per drum?

 

4. A government agency wants to purchase 200 drums of Xentra at cost plus a flat fee. Which allocation method gives the profit-maximizing result?

 

5. Assuming Pluton selects the cost allocation method as per pound, how much will profits increase on this order compared with allocating overhead per drum (the current system)?