Silva Chairs, Inc. makes two types of chairs. Model Diamond is a high-end produc
ID: 2336346 • Letter: S
Question
Silva Chairs, Inc. makes two types of chairs. Model Diamond is a high-end product designed for professional offices. Model Gold is an economical product designed for family use. Jane Silva, the president, is worried about cut-throat price competition in the chairs market. Her company suffered a loss last quarter, an unprecedented event in its history. The company’s accountant prepared the following cost data for Ms. Silva:
The market price for office chairs comparable to Model Diamond is $180 and to Model Gold is $110.
Required
Compute the cost per unit for both products.
Dan Barker, the chief engineer, told Ms. Silva that the company is currently making 150 units of Model Diamond per batch and 245 units of Model Gold per batch. He suggests doubling the batch sizes to cut the number of setups in half, thereby reducing the setup cost by 50 percent. Compute the cost per unit for each product if Ms. Silva adopts his suggestion.
Direct Cost per Unit Model Diamond (D) Model Gold (G) Direct materials $ 45 per unit $ 30 per unit Direct labor $ 24 /hour × 2 hours production time $ 24 /hour × 1 hour production timeExplanation / Answer
Finding Cost per Unit Includes things One is Direct Costs which is straightly Given for Materials Per unit and Labour cost need to be calculated by multiplying with Hours and Rate per Hour.
Next Is Overhead Which is calculated by Dividing Total OH per Driver by Sum of Cost Driver, This will gives OH allocation for total Units of products.
Which is then Divided by number of units to get Cost Per Unit.
Per Unit Cost of D
300,000*(35,000/50,000) OR
300,000-_90,000=210,000
($210,000/35,000units)=6
B) Cost Per Unit of Diamond and Gold Excluding Batch Setup Cost
Diamond =129.9 - 20.8(table batch level)= $109.1
Gold =81.2 - 12.5=$68.7
Batch Level Revised Analysis , Ms. Silva suggestion
Setup Cost Will be Half (750,000*50%)= 375,000
Doubling Batch Size Reduce number of batch to Half, meaning
Diamond =104 /2 =52Batches
Gold =146 /2 =73 Bathces
Setup Cost OH Allocation Will be,
Setup Cost *(cost driver of item/sum of Cost Driver)
where sum of cost driver=52+73=125
So, Diamond's = 375,000 * (52/125) = $156,000
Gold's =375,000* (73/125) =$219,000
Per Unit Batch Level OH,
Diamond = 156,000 / 15,000 =10.4 per unit
Gold = 219,000 /35,000 =6.257 =6.26per unit
If the Suggested Plan exicuded as such will generate a saving in Cost Per Unit of Both Diamond and Gold.
Diamond $ Gold $ Direct Material 45 30 Direct Labour $24/hr*2=48 $24/hr*1=24 Overhead Allocation Estimated Cost Sum Of Cost Driver FOr15,000 Unit DPer Unit Cost of D
For 35,000Unit G Per Unit Cost of G Unit Level $300,000 (15000+35000)=50,000 300,000*(15,000/50,000)=90,000 ($90,000/15,000units)=6300,000*(35,000/50,000) OR
300,000-_90,000=210,000
($210,000/35,000units)=6
Batch Level $750,000 (104+146)=250 750,000*(104/250)=312,000 (312000/15000)=20.8 (750,000-312,000)=438,000 (438000/35000)=12.5142 Product Level $450,000 (5+10)=15 450,000*(5/15)=150,000 (150000/15000)=10 (450,000-150,000)=300,000 (300000/35000)=8.5714 Facility Level $500,000 (1500+3500)=5,000 5000*(1500/5000)=1,500 (1500/15000)=0.1 (5000-1500)=3,500 (3500/35000=0.1 Total OH 2,000,000 (6+20.8+10+0.1)=36.9 (6+12.5142+8.5714+0.1)=27.2 Cost Per Unit(Direct+OH) (45+48+36.9)=129.9 (30+24+27.2)=81.2Related Questions
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