Reference no: EM132571443

Kew Beach Wear Inc. (KBW) manufactures swimsuits and beach accessories at a rented plant in Oshawa, Ontario. In 2019, KBW decided to extend its product line by manufacturing colourful beach bags. Each bag requires 0.7 metres of waterproof canvas that costs $14.00 per metre. Each bag also requires 0.5 direct labour hours to cut and assemble the canvas. KBW pays its employees $12.50 per hour. KBW's controller noted that plant utilities expense for 2019 was $35,000 and that the rental cost for the production plant was $65,000 in 2019. KBW allocates all relevant overhead costs to inventory. KBW is facing increased competition for swimsuits from low-price imports; as a result, production output from the Oshawa plant has decreased in 2019. The plant's normal capacity is 90,000 labour hours. However, in 2019 the plant has operated at only 70,000 labour hours. KBW hopes to return to normal production levels within two years. KBW uses absorption costing for overhead based on direct labour hours.

Required:

Question 1: Calculate the amount that KBW should record in its inventory for each completed beach bag. Show all calculations and state all assumptions.