Question

Cost classifications For each of the following costs, check the columns that most likely apply (both variable and fixed might apply for some costs). Product Costs Direct Indirect Period Variable Fixed Wages of assembly-line workers Glue and thread Outbound shipping costs Raw materials handling costs Salary of public relations manager Production run setup costs Plant utilities Electricity cost of retail stores Research and development expense Product costing-manufacturing overhead Nautical Accessories, Inc.,, manu- Lo 5 factures women's boating hats. Manufacturing overhead is assigned to production on a machine-hour basis. For 2016, it was estimated that manufacturing overhead would total $359,520 and that 21,400 machine hours would be used. Required: A. Calculate the predetermined overhead application rate that will be used for absorption costing purposes during 2016. B. During April, 3,900 hats were made. Raw materials costing $6,240 were used, and direct labor costs totaled $9,165. A total of 780 machine hours were worke during the month of April. Calculate the cost per hat made during April. C. At the end of April, 1,050 hats were in ending inventory. Calculate the cost of the ending inventory and the cost of the hats sold during April.

Answer 1

A. Particular Direct Indirect Variable Fixed

1 Wages of Assembly Yes No Yes No

2 Deprecation of plant & No Yes No Yes

Machinery

3 Glue & Thread No No Yes No

4 Outbound Shipping Cost No Yes No Yes

5 Raw Material Handling Cost Yes No Yes No

6 Salary Of Public Relations No Yes No Yes

manager

7 Production Run Setup Costs Yes No Yes No

8 Plant Utilities Yes No Yes No

9 Electricity cost of retail stores No Yes Yes No

10 Research and development No Yes No Yes

expense

B. Product-Costing

i. Manufacturing Cost Per Machine Hour = Total Manufacturing overhead / Total Machine Hours

Manufacturing Cost Per Machine Hour = 359,520.00 / 21,400.00

Manufacturing Cost Per Machine Hour = 16.80

ii. Particular Amount

Raw Material $6,240

Direct Labor Cost $9,165

$15,405

Manufacturing overhead $13,104

(780 hours* $16.80)

Total Cost of 3900 Hats $28509

Thus, the Cost of One hat = $28509 / 3900 hat = $7.31 per hat

iii. Total Hats made During the Month Of April 3,900

Less: Closing Inventory 1,050

Sold During the month of April 2,850

Cost Of Hats Sold During the month of April

= 2,850 * $7.31

= $20,833.5

Cost of Closing Stock (1,050 hat) = 1,050 hat * $7.31 = 7675.5