Question

Preparing a Cost of Goods Sold Budget Andrews Company manufactures a line of office chairs. Each chair takes $14 of direct materials and uses 1.9 direct labor hours at $16 per direct labor hour. The variable overhead rate is $1.20 per direct labor hour, and the fixed overhead rate is $1.60 per direct labor hour. Andrews expects to produce 20,000 chairs next year and expects to have 675 chairs in ending inventory. There is no beginning inventory of office chairs. Required: Prepare a cost of goods sold budget for Andrews Company. Andrews Company Cost of Goods Sold Budget For the Coming Year Direct materials $ Direct labor Variable overhead Fixed overhead Total manufacturing cost $ Less: Ending inventory Cost of goods sold $

Answer 1

Chair unit cost:                 $    49.72

Total cost for 675 chairs:  $  33,561

Solution:

Direct Materials:                                                                       $  14.00

Direct Labour:   1.9 hours x $16 labour cost:                           $ 30.40

Overhead:

1.9 labour hours x ($ 1.6 variable rate + $ 1.20 fixed rate) = $  5.32  

                                        Total unit cost:                             $ 49.72

Cost to produce 675 chairs:

675 chairs x $ 49.72 per chair = $ 33,561‬