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FinnZ [79.3K]
3 years ago
14

Kearney, Inc., makes kitchen tools. Company management believes that a new model of coffee grinder would sell well at a price of

$66. The company estimates unit materials costs to be $16 for the model, and overhead costs would average $18 per unit. The local wage rate for direct labor is $28 per hour. Kearney has a goal of earning an operating profit of 20 percent of manufacturing costs for each of its products.
What direct labor-hour input could Kearney allow to still achieve its profit goal?
Business
1 answer:
IRINA_888 [86]3 years ago
3 0

Answer:

$0.15 hours per unit

Explanation:

Given that

Direct material cost = $16

Assume Direct labor cost = X

Manufacturing overheads = $18

Profit margin = 20%

Direct labor per hour cost = $28

The computation of direct labor-hour input is shown below:-

Total manufacturing cost = X + $34

Total cost of goods sold = (X + $34) × 1.7 = $66

Direct labor cost per unit

= (X + $34) = $38.82

= $38.82 - $34

= $4.32

Direct labor hours per unit = Direct labor cost per unit ÷ Direct labor per hour cost

= $4.32 ÷ $28

= $0.15 hours per unit

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4 years ago
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4 years ago
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2 years ago
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