Clay Co. produces ceramic coffee mugs and pencil holders. Manufacturing overhead
ID: 2459558 • Letter: C
Question
Clay Co. produces ceramic coffee mugs and pencil holders. Manufacturing overhead is assigned to production using an application rate based on direct labor hours. Required: For 2013, the company's cost accountant estimated that total overhead costs incurred would be $693,600 and that a total of 68,000 direct labor hours would be worked. Calculate the amount of overhead to be applied for each direct labor hour worked on a production run. (Round your answer to 2 decimal places.) A production run of 500 coffee mugs used raw materials that cost $600 and used 60 direct labor hours at a cost of $11.80 per hour. Calculate the cost of each coffee mug produced. (Do not round your intermediate calculations and round your final answer to 2 decimal places.) At the end of October 2013, 410 coffee mugs made in the production run in part b had been sold and the rest were in ending inventory. Calculate (1) the cost of the coffee mugs sold that would have been reported in the income statement and (2) the cost included in the October 31, 2013, finished goods inventory. (Do not round your intermediate calculations and round your final answers to 2 decimal places.)Explanation / Answer
Answer a. Predetermined overhead application rate = $693600 (Estimated Total Overhead) / 68000 hrs (Direct Lab. Hrs) Predetermined overhead application rate = $10.20 per direct lab. Hr. Answer b. Calculation of Cost per Mug Produced Direct Material - $600 / 500 Mugs 1.20 Direct Labour - (60 Hrs X $11.80) / 500 1.42 MOH- ($10.20 X 60 Hrs) / 500 1.22 Total Cost per Mug 3.84 Answer c. Cost of Coffee Mugs Sold - 410 Mugs X $3.84 1,574.40 Cost of Coffee Mugs in Inventory - 90 Mugs X $3.84 345.60
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