1.Office Products produces three models of commercial shelving: the A, B, and C models. Data on operations and costs for the month are the following:
A B C Total
Machine hours 8,000 6,000 4,000 18,000
Direct labor hours 6,000 6,000 4,000 16,000
Units produced 1,000 500 250 1,750
Direct material costs $ 20,000 $ 12,500 $ 7,500 $ 40,000
Direct labor costs 129,000 100,000 71,000 300,000
Manufacturing overhead costs 520,800
Total costs 860,800
Required: Compute the unit cost for each model, assuming Office Products uses:
(a) Direct labor hours to allocate overhead costs.
(b) Direct labor costs to allocate overhead costs.
(c) Machine hours to allocate overhead costs
2.The following information relates to a product produced by Martin Company.
Direct Materials $ 50
Direct Labor 35
Variable Overhead 30
Fixed Overhead 40
Unit Cost $155
Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Martin expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased.
Required:
(a) Compute the effect on income if Martin accepts the special order.
(b) If Martin accepts the special order, how much could normal sales drop before all of the differential profits disappear?