Question

Five Card Draw manufactures and sells 24,000 units of Diamonds, which retails for $180, and 27,000 units of Clubs, which retails for $190. The direct materials cost is $25 per unit of Diamonds and $30 per unit of Clubs. The labor rate is $25 per hour, and Five Card Draw estimated 180,00 direct labor hours. It takes 3 direct labor hours to manufacture Diamonds and 4 hours for Clubs. The total estimated overhead is $720,000. Five Card Draw uses the traditional allocation method based on direct labor hours.

Answer 1

Question Completion:

Find the gross profits for Diamonds and Cards

Find the total gross profit

Answer:

Five Card Draw

                               Diamonds          Clubs           Total

Gross profit          $1,632,000     $1,188,000  $2,820,000

Explanation:

a) Data and Calculations:

                                                  Diamonds       Clubs           Total

Units manufactured and sold     24,000        27,000        51,000

Retail price                                    $180            $190

Sales revenue                          $4,320,000   $5,130,000 $9,450,000

Direct materials cost per unit       $25              $30

Labor rate = $25 per hour

Direct labor hours per unit              3                  4

Total direct labor hours              72,000       108,000       180,000

Estimated overhead = $720,000

Predetermined overhead rate = $4 ($720,000/180,000) per DLH

Overhead allocation                $288,000     $432,000     $720,000

Total direct materials costs    $600,000      $810,000    $1,410,000

Total direct labor costs         $1,800,000  $2,700,000  $4,500,000

Total costs of production     $2,688,000 $3,942,000  $6,630,000

Income Statement:

                                                  Diamonds       Clubs           Total

Sales revenue                       $4,320,000   $5,130,000  $9,450,000

Total costs of production     $2,688,000  $3,942,000  $6,630,000

Gross profit                           $1,632,000     $1,188,000  $2,820,000