Mannix produces different kinds of industrial packing materials, all in one manu

Question

Mannix produces different kinds of industrial packing materials, all in one manufacturing facility. They have identified four activities for their costing system:

Materials management—allocated by number of purchase orders
Chemical processing—allocated on metric tons
Molding—allocated on direct labor hours
Packaging—allocated by number of units produced

The activity rates are as follows:

Materials management

$10.00

   Per purchase order

Chemical processing

$6.50

   Per metric ton

Molding

$23.50

   Per direct labor hour

Packaging

$0.25

   Per unit

Engineering design shows that the order will require direct material worth $775, direct labor cost being $125, require 5 purchase orders to be placed, use 6 metric tons of chemical base, need 12 direct labor hours. The size of the order is to produce 5,000 units of product.

Required:

(1) Calculate the overhead cost of the order.
(2) Calculate total cost of production of the order.  

Materials management

$10.00

   Per purchase order

Chemical processing

$6.50

   Per metric ton

Molding

$23.50

   Per direct labor hour

Packaging

$0.25

   Per unit

Explanation / Answer

Answer 1. Calculation of Overhead Cost Amount Materials Management - $10 X 5 orders                         50 Chemical processing - $6.50 X 6 metric tons                         39 Molding - $23.50 X 12 DLH                      282 Packaging - $0.25 X 5000 Units                   1,250 Total                   1,621 Answer 2. Calculation of Total Cost of production Direct Materials                      775 Direct Labor Costs                      125 Overhead                   1,621 Total cost                   2,521

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