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28 May, 20:53

achary Manufacturing Co. expects to make 31,100 chairs during the year 1 accounting period. The company made 4,800 chairs in January. Materials and labor costs for January were $16,500 and $26,000, respectively. Zachary produced 1,800 chairs in February. Material and labor costs for February were $9,500 and $12,500, respectively. The company paid the $622,000 annual rental fee on its manufacturing facility on January 1, year 1. Required Assuming that Zachary desires to sell its chairs for cost plus 45 percent of cost, what price should be charged for the chairs produced in January and February

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  1. 29 May, 00:16
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    (a) $41.84 per chair

    (b) $63.24 per chair

    Explanation:

    Given that,

    Annual rental fee = $622,000

    January:

    Material cost = $16,500

    Labor cost = $26,000

    Number of chairs produced = 4,800

    February:

    Material cost = $9,500

    Labor cost = $12,500

    Number of chairs produced = 1,800

    Overhead absorption rate:

    = Annual rental fee : Budgeted production

    = $622,000 : 31,100

    = $20 per chair

    For January:

    Total cost for January:

    = Material cost + Labor cost + Overhead (Number of chairs produced * Overhead per chair)

    = $16,500 + $26,000 + (4,800 * $20 per chair)

    = $16,500 + $26,000 + $96,000

    = $138,500

    Desired profit:

    = 45% of cost

    = 0.45 * $138,500

    = $62,325

    Total Value of goods = Profit + Cost

    = $62,325 + $138,500

    = $200,825

    Price per chair:

    = Total value : Quantity sold

    = $200,825 : 4,800

    = $41.84 per chair

    For February:

    Total cost for February:

    = Material cost + Labor cost + Overhead (Number of chairs produced * Overhead per chair)

    = $9,500 + $12,500 + (1,800 * $20 per chair)

    = $16,500 + $26,000 + $36,000

    = $78,500

    Desired profit:

    = 45% of cost

    = 0.45 * $78,500

    = $35,325

    Total Value of goods = Profit + Cost

    = $35,325 + $78,500

    = $113,825

    Price per chair:

    = Total value : Quantity sold

    = $113,825 : 1,800

    = $63.24 per chair
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