Blues Traveler Company sells electric razors. The company’s home office is in Pr

Question

Blues Traveler Company sells electric razors. The company’s home office is in Princeton, New Jersey. The company was founded in 2005 when John Popper invested $300,000 for 30,000 shares and Chan Kinchla invested $200,000 for 20,000 shares of common stock. The only other financing activities relate to a $500,000 bank loan from 1st National Bank that accrues interest at six percent per year payable on January 1 each year that has an unpaid balance of $400,000. The loan is due on December 31, 2023.

            The company’s products are designed by engineers at the home office and manufactured in Asia. The company has 2 design engineers who are each paid $110,000 per year; 4 marketing employees who each earn salaries of $40,000 per year; 8 subcontractors who earn $10 per hour to actually build the razors and 6 truck drivers who earn $12 per hour to deliver the razors to the stores where they are sold directly to customers. The owners supervise the manufacturing and sales activities and handle all the administrative tasks but their only compensation is distributions of retained earnings at the end of the year if the company is profitable.

            The Men’s Razor has $5 of raw materials per unit, requires 1.5 direct labor hours per unit and should consume 15,000 annual machine hours and 52,000 annual factory manager hours. The Women’s razor has $7 of raw materials, uses up 2 direct labor hours per unit and should consume 7,500 annual machine hours and 13,000 annual factory manager hours. John estimates $100,875 of indirect manufacturing costs will be incurred and has established the following cost pools and cost drivers and intends to allocate manufacturing overhead using an activity based costing system.

     

Activity

Estimated Costs

Cost Driver

Estimated Cost Driver

Required for the Year

Factory Machinery Costs

$61,875

Machine Hours

22,500

Factory Building Costs

$39,000

Factory Manager Hours

65,000

$100,875

John is thinking about registering with the SEC so that the company can trade its shares publicly. If the company goes public, John wants the company to issue 75,000 new shares at $20.00 each to generate $1,500,000 of new capital. The Men’s Razor sells for $45.00 and the Women’s model sells for $55.00. John expects to produce and sell 30,000 of the Men’s Razor and 10,000 of the Women’s Razor in the current year.

            The depreciation of long-term assets is based on the straight-line method and each asset’s estimated useful life. The insurance costs are the monthly premium the company pays to GEICO. Home office utilities average about $650 per month. The truck drivers deliver the razors to the stores in lots of 5,000 razors each trip and each trip takes about 200 hours up and back. The factory machinery costs are twenty percent variable and eighty percent fixed. The factory building costs are sixty variable and forty percent fixed.  

Home Office Building Depreciation

$8,500/Year

Home Office Computers Depreciation

$4,500/Year

Men’s Razor Raw Materials

$5.00/Per Unit Produced

Women’s Razor Raw Materials

$7.00/Per Unit Produced

Home Office Insurance

$21,000/Year

Home Office Utilities

$7,800/Year

Design Engineer Salaries

$110,000 annual/Per Engineer

Marketing Employee Salaries

$40,000 annual/Per EE

Interest on 1st National Loan

$24,000/Year

Truck Driver’s Wages ($12 per hr)

$19,200/Year

Factory Machinery Costs

$61,875/Year

Home Office Property Taxes

$8,500/Year

Men’s Razor Direct Labor

$15/Per Unit Produced

Women’s Razor Direct Labor

$20/Per Unit Produced

Factory Building Costs

$39,000/Year

Trucks Depreciation

$5,000/Year

1-Create a Job Cost Sheet (JOB 83) to calculate the total and per unit cost of building 60 Men’s Razors. The job consumed 34 machine hours and 106 factory manager hours. Use the full absorption costing concept.

2-Create a Job Cost Sheet (JOB 92) to calculate the total and per unit cost of building 35 Women’s Razors. The job required 29 machine hours and 47 factory manager hours. Absorption costing.

Activity

Estimated Costs

Cost Driver

Estimated Cost Driver

Required for the Year

Factory Machinery Costs

$61,875

Machine Hours

22,500

Factory Building Costs

$39,000

Factory Manager Hours

65,000

$100,875

Explanation / Answer

1. Job Cost Sheet : Job 83:

2. Job Cost Sheet: Job 92

Direct Materials ( 60 x $ 5) $ 300 Direct Labor ( 60 x 1.5 hours x $ 10) 900 Factory Machinery Cost ( $ 61,875 / 22,500) x 34 93.50 Factory Building Costs ( $ 39,000 / 65,000) x 106 63.60 Total Manufacturing Costs $ 1,357.10

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.