Reference no: EM132703341
Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines. Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.
The materials include $1,000for the wood and other materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.
The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets
It assumes 800units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:
Salaries-office & administrative$ 520,000
Salaries for factory personal$ 220,000
Office Rent $ 125,000
Factory Rent$ 20,000
Utilities and Misc office expenses(based on units sold)$ 20,000
Travel(based on units sold)$ 24,000
Insurance -office$ 12,000
Depreciation -office equipment$ 40,000
Depreciation for factory equipment$ 70,000
Advertising$ 20,000
Sales commissions(based on units sold)$ 45,000
Factory Property taxes$ 10,000
Maintenance for factory equipment$ 80,000
Problem 1: Determine the cost of manufacturing one custom kitchenassuming the units given.Assume the MOH costs are allocated based on the direct labor hours per unit.Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first.You should calculate an Overhead rate. Discuss other optionsfor the activity baseand the importance ofthe MOH allocation. Do multiple product lines impact the MOH allocation?
Problem 2: What are the variable costs for this product line? What are the fixed costs? I would recommend that you show a schedule for each areaon a yearly basis. For the variable costs, also, show them on a per unit(800 units) How does a company identify each type of cost? Can a cost classification be changed over time?If yes, explain how. If no, explain why?
Problem 3: What is the Contribution Margin(CM)in totalandper unitdollars, and CM%for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income.Create some exampleswith numbersto show howit can be used.
Problem 4: Prepare traditional Income Statement assuming avolume of 800 units. For the cost of goods sold, please use theper unit cost you calculated in #1. You do not have to prepare any additional schedules.I would use a similar format to exhibit 16-8 on page 737or from your lecture notes.