From Materials available in your text Chalmette Corporation produces flat-bottom
ID: 2498211 • Letter: F
Question
From Materials available in your text
Chalmette Corporation produces flat-bottom boats. Each boat requires the following items.
Direct material $3,000
Direct labor (200 hours @ $10 per hour) 2,000
Variable overhead 1,000
Chalmette applies variable overhead based on direct labor hours. Total fixed overhead costs for 2011 are estimated at $500,000 and the company plans to attach actual fixed overhead to units produced.
Required:
a. What is Chalmette’s predetermined variable overhead rate?
b. If Chalmette produces 3,000 boats during 2011, what is total estimated production cost? What is the cost per unit?
c. Assume that Chalmette increases employee wages to $12 per hour and that Chalmette decides to produce 2,500 boats. What will be Chalmette’s total estimated production cost? What is the cost per unit?
d. Explain the reason for the cost per-unit differences in parts b and c. Prove your answer with computations.
Explanation / Answer
a.)
Variable Overhead = $1,000 per boat
But if we include all variable costs
Total Variable Overhed = 1,000 + 2,000 +3,000 = $6,000 per boat
b.) Boats produced = 3,000
Total Variable cost per boat = $6,000
Total Variable Cost = 6,000 * 3,000 = $18,000,000
Fixed Cost = 500,000
Total Production Cost = $18,500,000
Cost per unit = 18,500,000 / 3000 = $6,166.7
c.)
New Direct Labour Cost = 200*12 = $2400
New Total Variable cost per unit = $6400
Total Variable Cost = 6400 * 2500 = $16,000,000
Total Production Cost = $16,500,000
Total cost per unit = $6600
d.) The higher cost in c is due to two factors:
Higher Labour Cost. (2400 - 2000 = $400 per unit)
Fixed cost divided among fewer units
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