Question:

Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,500 for the wood and other materials on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $12.The sales price will be set at a markup of 85%.

The companyestimatesthat it will have 16,000 direct labor hours in total for the kitchen cabinets.

It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries- office & administrative

$ 520,000

Salaries for factory personal

$ 220,000

Office Rent

$ 125,000

Factory Rent

$20,000

Utilities and Misc office expenses(based on units sold)

$20,000

Travel(based on units sold)

$24,000

Insurance - office

$14,000

Depreciation - office equipment

$45,000

Depreciation for factory equipment

$70,000

Advertising

$20,000

Sales commissions(based on units sold)

$45,000

Factory Property taxes

$10,000

Maintenance for factory equipment

$80,000

1)

Determine the average cost of manufacturingone custom kitchen given the units expected to be sold every year, assuming the MOH costs are allocated based on the direct labor hours per unit.

Calculate the sales price based on your cost calculation.

Calculations the nearest dollar is highly appreciated.Tip: calculate the MOH per kitchen first.You should calculate an Overhead rate.

2)

Discuss other options for the activity base and the importance of the MOH allocation for Classic Cabinets.

Do multiple product lines impact the MOH allocation?