The mono-relay was the only product that Zapro Company produced for a long time. The firm then automated a section of its facility three years ago, and at the same time, it launched a second product called a bi-relay, which has gained popularity.
The bi-relay is a more complicated product that requires substantial machining in the automated part of the plant and one hour of direct labor work per unit to produce. The mono-relay simply needs a few hours of direct labor time and a little bit of machining each unit. At the moment, direct labor hours are used to assign manufacturing overhead costs to products. The business's new bi relay is becoming increasingly popular, but earnings have been rapidly dropping.
- Manufacturing indirect cost per direct labor hours = Estimated manufacturing indirect costs / Estimated direct labor hours
- Manufacturing indirect cost per direct labor hours = $1,000,000 / [(30,000*0.50)+(10,000*1)]
- Manufacturing indirect cost per direct labor hours = $1,000,000 / (15,000+10,000)
- Manufacturing indirect cost per direct labor hours = $1,000,000 / 25,000 = $40 per direct labor hour
a.
- Manufacturing indirect costs allocated to Mono-Relay = 15,000 * $40 = $600,000
- Manufacturing indirect costs allocated to Bi-Relay = 10,000 * $40 = $400,000
b.
Sales $1,650,000 (30,000*$55) $1,000,000 (10,000*$100)
Less: Costs:
Direct materials 1,050,000 (30,000*$35) 480,000 (10,000*$48)
Direct labor 180,000 (30,000*$6) 120,000 (10,000*$12)
Manufacturing indirect costs 600,000 400,000
Total costs 1,830,000 1,000,000
Profit (loss) ($180,000) $0
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