The piece of sheet metal from which 8 pad cases can be made costs $0.16. This am

Question

The piece of sheet metal from which 8 pad cases can be made costs $0.16.

This amount is based on the number of sheets in a 4,000-pound bundle of sheet metal, which is the usual purchase quantity.

The foam pad that is put in the case costs $0.08, based on the number of pads that can be cut from a large roll of foam.

Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 1,770 pads by 5 workers in an eight-hour shift. The standard direct labor pay rate is $11.75 per hour.

Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $16 per direct labor hour, of which $6.35 per hour is fixed manufacturing overhead.

Calculate the standard absorption cost of a package of 16 stamp pads. (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Stamper Manufacturing Co.'s management is considering a special promotion that would result in increased sales of 2,100 packages of 16 pads per package. Calculate the cost per package that is relevant for this analysis. (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

The piece of sheet metal from which 8 pad cases can be made costs $0.16.

This amount is based on the number of sheets in a 4,000-pound bundle of sheet metal, which is the usual purchase quantity.

The foam pad that is put in the case costs $0.08, based on the number of pads that can be cut from a large roll of foam.

Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 1,770 pads by 5 workers in an eight-hour shift. The standard direct labor pay rate is $11.75 per hour.

Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $16 per direct labor hour, of which $6.35 per hour is fixed manufacturing overhead.

Explanation / Answer

a.

Sheet metal cost for 16 pads = 0.16*2 = 0.32

Foam pad cost for 16 pads = 0.08*16 = 1.28

Labor costs for 1770 pads = 5 workers*8 hours/worker*11.75/hour = $470

Labor costs for 16 pads = 470*16/1770 = 4.25

Manufacturing overhead costs for 1770 pads = 5 workers*8 hours/worker*16/hour = $640

Manufacturing overhead costs for 16 pads = 640*16/1770 = 5.79

So standard absorption cost per package of 16 pads = 0.32+1.28+4.25+5.79 = $11.64

b.

All costs above would be relevant for the sales promotion, except the manufacturing overhead, where the relevant rate/hour should not be 16/hour but (16-6.35)/hour, as 6.35 is fixed overhead. This is 9.65/hour.

So revised manufacturing overhead costs for 1770 pads = 5 workers*8 hours/worker*9.65/hour = $386

Revised manufacturing overhead costs for 16 pads = 386*16/1770 = 3.49

So relevant cost per package of 16 pads = 0.32+1.28+4.25+3.49 = $9.34

Hope this helped. Let me know in case of any queries.

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