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Question - Beach Chair Corporation makes two types of beach chairs, reclining and straight-back. The direct costs per unit of the two chairs are as follows:
Reclining chairs:
Direct Materials - $3
Direct Labour - $5
Straight-Back:
Direct Materials - $5
Direct Labour - $2
The company has no beginning inventory. During the year the company plans and makes 10,000 reclining chairs and 20,000 straight-back chairs. The company sells all of the reclining chairs for $20 each but only half of the straight back chairs for $18 each during the year. Budgeted and actual overhead costs during the year are $150,000.
Required -
a. Calculate the operating profit using direct material dollars as the allocation base for the manufacturing overhead.
b. Calculate the operating profit using direct labor dollars as the allocation base for the manufacturing overhead.
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