Question

Kearney, Inc., makes kitchen tools. Company management believes that a new model of coffee grinder would sell well at a price of $70.20. The company estimates unit materials costs to be $9.00 for the model, and overhead costs would average $30.70 per unit. The local wage rate for direct labor is $26.00 per hour. Kearney has a goal of earning an operating profit of 30.00 percent of manufacturing costs for each of its products.
Required:

What direct labor-hour input (hours per unit) could Kearney allow and still achieve its profit goal? (Round your answer to 2 decimal places.)

Answer 1

Answer:

The direct labor cost per unit is $0.55 as computed below.

Explanation:

The direct labor-hour input that Kearney could allow and still achieve its profit goal of 30% of manufacturing costs for each of its product is calculated as:

Price =Direct material cost+Direct labor cost+overhead cost+profit %

let labor cost be y

Price=(9+30.7+y)*1.3

Price=39.7+y

since price =$70.20

Equation becomes:

70.20=(39.7+y)1.3

70.20/1.3=39.7+y

54=39.7+y

y=54-39.7

y=14.3

since direct labor hour is $14.3 per unit and direct labor cost per hour is $ 26  ,the labor-input required is 14.3/26 is $0.55