Reference no: EM132625014
La Patisserie is a small bakery that provides cakes and breads to small grocery shops in the town of Soquel, California. It is housed in a single building. The ovens and mixing areas occupy 65% of the space, 5% is used for storing and mailing marketing literature and the rest is occupied by the office staff. The bakery operates 360 days per year, 8 hours per day. It employs two cake bakers who are paid $22 per hour and two bread bakers who are paid $12 per hour and has a small staff of helpers who account for 30% of the other employee salaries. Approximately 60% of its materials, flour, eggs, sugar and oil, are used for cakes; the remaining 40% are used for bread. Indirect manufacturing costs are allocated to products on the basis of direct labor hours. During the current year, it started and completed 108,000 units of cakes and 144,000 units of bread at a selling price of $6 per unit and $1.50 per unit respectively.
Annual costs incurred by La Patisserie:
Flour, Eggs, Sugar and Oil $140,300
Office staff salaries $89,500
Rent utilities and insurance $124,700
Baker's wages $214,000
Salaries of other employees $106,000
Sales commissions (5%) $50,000
Delivery cost to customers $4,500
Other baking materials & supplies $23,900
Office equipment & supplies $15,250
Total cost $768,150
Problem 1: Assume that the manufacturing overhead charged to cake is $80,000. What is the direct product cost per cake using GAAP accounting rules?
Group of answer choices
Option 1: $2.69.
Option 2: $1.95.
Option 3: $2.42
Option 4: $1.99