Question

EcoSkate makes skateboards from recycled plastic. For a recent job lot of 125 skateboards, the company incurred direct materials costs of $1,150 and direct labor costs of $250. Overhead is applied using a rate of 150% of direct materials costs.
Required:
a. What is the total manufacturing cost of this job lot?
b. What is the cost per skateboard?

Answer 1

a) The total manufacturing cost is $ 3125

b) The cost per skateboard is $ 25

Solution:

The company incurred direct materials costs of $1,150 and direct labor costs of $250

Direct material cost = $ 1150

Direct labor cost = $ 250

Overhead is applied using a rate of 150% of direct materials costs

Therefore,

Overhead cost = 150 % of 1150

$Overhead\ cost = 150 \% \times 1150\\\\Overhead\ cost = \frac{150}{100} \times 1150\\\\Overhead\ cost = 15 \times 115\\\\Overhead\ cost = 1725$

Total manufacturing cost = Direct material cost + Direct labor cost + overhead cost

Total manufacturing cost = 1150 + 250 + 1725 = 3125

Thus total manufacturing cost is $ 3125

b. What is the cost per skateboard?

Cost per skateboard = (Total manufacturing cost) ÷ (number of  skateboards)

$Cost\ per\ skateboard = \frac{3125}{125} = 25$

Thus cost per skateboard is $ 25