Mannix produces different kinds of industrial packing materials, all in one manu
ID: 2460547 • Letter: M
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
(1) Calculation of overhead cost of the order.
A. Ordering Cost = number of order * Rate per order
= 5 * 10 = $ 50
B. Cost of Chemical processing = No. of matric tons * Rate per matric ton
= 6 * 6.5 = $ 39
C. Molding Cost = Direct labour hours * Rate per labour hour
= 12 * 23.50 = $ 282
D. Packing Cost = No. of units * Rate per unit
= 5000 * 0.25 = $ 1250
Total Overhead Cost = A+B+C+D
= 50+39+282+1250
= $ 1621
(2) Calculation of total cost of production of the order.
Material Cost = $ 775
Labour Cost = $ 125
Overhaed Cost = $ 1621
Total cost of production = $ 2521
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