Question

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 $1.10 per direct labor hour and the fixed overhead rate is $1.50 per direct labor hour. Andrews expects to have 620 chairs in ending inventory. There is no beginning inventory of office chairs.
Required:
1. Calculate the unit product cost. (Note: Round to the nearest cent.)$
2. Calculate the cost of budgeted ending inventory. (Note: Round to the nearest dollar.)$

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Direct material= $14

Direct labor= 1.9 direct labor hours at $16 per direct labor hour.

Variable overhead= $1.10 per direct labor hour

Fixed overhead rate= $1.50 per direct labor hour.

Ending inventory (units)= 620

We can calculate the unitary product cost using the absorption or variable costing method. The first one includes the unitary fixed overhead to the unitary product cost.

Absorption costing:

Unitary cost= 14 + 1.9*16 + (1.1+1.5)*1.9= $49.34

Ending inventory= 49.34*620= $30,590.8

Variable costing:

Unitary cost= 14 + 1.9*16 + 1.1*1.9= $46.49

Ending inventory= 46.49*620= $28,823.8