Problem 3: The HVCC Corporation manufactures custom made wooden signs for client
ID: 2548425 • Letter: P
Question
Problem 3: The HVCC Corporation manufactures custom made wooden signs for clients northeastern United States. It estimates that for the upcoming 2016 calendar year ts total manufacturing overhead costs will be $350,000 and the estimated direct labor hours needed wl be throughout the 20,000 hours. a) if HVCC Corporation materials and 800 hours of direct labor@ this sign? makes a sign for the Saratoga Race Track that uses $17,000 worth of direct S50 per hour, what will be the total product cost for b) What other factors, other than product costs, would you consider in setting the total price of the sign?Explanation / Answer
To calculate total cost we need material cost, labor cost and overhead cost.
Material cost = 17000
Labor cost = 800* 50 = 40000
OH = ?
To calculate OH cost we need to determine predetermine OH rate
= Estimated OH cost/ estimated labor hours
= 350000/20000 = 17.5/ labor hour
So that means for every hour of direct labor $17.5 will be allocated to OH cost.
Total OH cost = 800* 17.5 = 14000
Total cost = 17000 + 40000 + 14000 = 71000
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What we have determined above is total variable cost.
However there are many other cost which are a part of total product cost.
Like fixed cost, depreciation expenses, selling & administration Expenses,
When we add all these cost to total variable cost we will get total product cost.
Then we will add our profit margin, the amount that we will get is the price of the product.
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Hope this answer your query.
Feel free to comment if you need further assistance. J
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