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[The following information applies to the questions displayed below.] Knickknack, Inc., manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate
[The following information applies to the questions displayed below.] |
Knickknack, Inc., manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate based on direct-labor hours. Production and product-costing data are as follows: |
Odds | Ends | |||||
Production quantity | 1,000 | units | 5,000 | units | ||
Direct material | $ | 160 | $ | 240 | ||
Direct labor (not including setup time) | 120 | (4 hr. at $30) | 180 | (6 hr. at $30) | ||
Manufacturing overhead* | 384 | (4 hr. at $96) | 576 | (6 hr. at $96) | ||
Total cost per unit | $ | 664 | $ | 996 | ||
| | | | |||
*Calculation of predetermined overhead rate: |
Manufacturing overhead budget: | |||
Machine-related costs | $ | 1,800,000 | |
Setup and inspection | 720,000 | ||
Engineering | 360,000 | ||
Plant-related costs | 384,000 | ||
Total | $ | 3,264,000 | |
| | | |
Predetermined overhead rate: |
Budgeted manufacturing overhead | = | $3,264,000 | |
= $96 per direct-labor hour | |||
Budgeted direct-labor hours | (1,000)(4) + (5,000)(6) |
Knickknack, Inc., prices its products at 120 percent of cost, which yields target prices of $796.80 for odds and $1,195.20 for ends. Recently, however, Knickknack has been challenged in the market for ends by a European competitor, Bricabrac Corporation. A new entrant in this market, Bricabrac has been selling ends for $880 each. Knickknack |
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