T&J manufacturing 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 $1,000 for the wood and other direct materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.

The company estimates that it will have 16,000 direct labor hours in total for all product lines.

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

Office Utilities and Misc office expenses (based on units sold) $ 20,000

Sales Travel (based on units sold) $ 24,000

Insurance office $ 12,000

Depreciation - office equipment $ 40,000

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

QUESTIONS:

1. Determine the cost of manufacturing one custom kitchen assuming the units given. Assume the MOH costs are allocated based on the direct labor hours per unit. Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first. Discuss other options (at least 2 options) for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation? What happens if MOH is not allocated correctly?

2. What are the variable costs for this product line? What are the fixed costs? I would recommend that you show a schedule for each area on a yearly basis. For the variable costs, also, show them on a per unit (800 units) How does a company identify each type of cost? Can a cost classification be changed over time? If yes, explain how and give an least two examples. If no, explain why?

3. Prepare a Job Order Cost sheet for the following custom kitchen: Materials $3,500 and 30 hours of labor. What is the customer price? What other factors would impact the sales price for this type of company? Can a company rely on setting price based on just a % on cost?

4. What is the Contribution Margin (CM) in total dollars, CM% and per unit for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income. Create some examples in excel with numbers to show how it can be used.

Thank you!