Question

Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation.

1. Chairs
2. Desks
3. Total

Direct Materials
1. 4,000
2. 6,000
3. 10,000

Direct Labor
1. 12,000
2. 8,000
3. 20,000

Also the company incurred14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is.
1) $16,000
2) $30,000
3) $24,400
4) None of the answers is correct.

Answer 1

The total cost of making chairs is $24,400.

Step-by-step explanation:

The total cost of making chairs can be calculated by adding the direct materials cost, direct labor cost, and the allocated overhead cost.

The direct materials cost for chairs is $4,000 and the direct labor cost is $12,000.

To calculate the overhead cost, we need to first find the proportion of the direct labor cost to the total direct labor cost for both chairs and desks. The proportion for chairs is 12,000 / 20,000 = 0.6.

Multiplying this proportion by the total overhead cost of $14,000 gives us the allocated overhead cost for chairs: 0.6 * 14,000 = $8,400.

Therefore, the total cost of making chairs is the sum of the direct materials cost, direct labor cost, and allocated overhead cost: 4,000 + 12,000 + 8,400 = $24,400.

Therefore, the correct answer is option 3) $24,400.