Question

Champs, Inc. manufactures women’s gloves. Manufacturing overhead is applied to products using machine hours as an...

  1. Champs, Inc. manufactures women’s gloves. Manufacturing overhead is applied to products using machine hours as an activity level. For 2024, it was estimated that overhead would total $359,520 and that 21,400 machine hours would be used.

REQUIRED:

(a) Calculate the pre-determined overhead rate that will be used in 2024.

(b) During August, 3,900 pairs of gloves were made. Direct materials costing $6,240 were used and direct labor costs totaled $9,165. A total of 780 machine hours were worked during August. Calculate the cost per pair of gloves manufactured during August.

(c) At the end of August, 1,050 pairs of gloves were in ending inventory. Calculate the cost of ending finished goods inventory and the cost of goods sold for August. Assume there was no inventory on August 1.

Business   Accounting   
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Answer #1

Answer is as follows:

(a) Pre - determined overhead rate = Estimated Overheads / Estimated Machine hours

= $359520 / 21400 hours

= $16.80 per machine hour

(b) Cost per pair of gloves:

Direct Materials $6240

Direct labour $9165

Manufacturing Overhead $13104 (780 machine hours * $16.80)

Total Cost $28509

Number of pairs 3900

Cost per pair of gloves $7.31 ($28509/3900)

(c) Cost of ending finished goods = 1050 pairs * $7.31

= $7675.50

Cost of goods sold = (3900-1050) * $7.31

= $20833.50

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