Question 2

Part A

The ABC company manufactures beds that sell for $750. Budgeted sales for May , June and July 2020 are 3000 units , 4200 units and 3500 respectively.

Each bed requires 25 square feet of cedar wood at a cost of $8 per sq foot.

The company wants to maintain an inventory of bookcases equal to 15% of the following month sales. Inventory on May 1 consisted of 100 bookcases

The company wants to maintain an inventory of oak equal to 30% of the next months requirements. Materials inventory on May 1 consisted of 600 sq feet of cedar.

The company estimates an inventory of oak on hand at the end of June of approximately 500 sq feet .

Monthly fixed overhead and variable cost based on direct labor hour are provided on the table below:

Supervisors salaries	$7500
Direct labor hours for each bed	8 hours
Cost per labor hour	$11.50
Insurance [factory 40%]	$ 1500
Depreciation of equipment [Office]	$1200
Depreciation of store	$ 8500
Predetermined rate based on DHL	$5.00
Actual manufacturing overhead	$250,000

Required

1. Calculate period cost of this company.

2. Did the company over-applied or under-applied the manufacturing? What will be the effect on Cost of goods sold?