Pluton makes particular plastics for sale to the public and the
government. Basic cost data for a 100-pound drum of one particular
product called Xentra appears below:
Qty |
Cost |
|
Chemical Xeta, gals |
15 |
$25.00 |
Chemical Thenta, gals |
35 |
$27.50 |
Base material, lbs |
20 |
$1.00 |
100-lb lined drum |
1 |
$51.83 |
Assuming normal production levels, what is the conversion cost
(direct labor and overhead) per drum?
Variable factory overheads are estimated to be $1,200,000 per
month, when 1,000,000 pounds of various products are produced. The
plant employs 20 chemical workers who typically work 175 hours each
per month and are paid $24 per hour. Other workers are classified
as indirect and are included in fixed overheads. The highly
automated plant typically runs 21,000 machine hours per month. The
preparation of one 100 lbs batch of Xentra needs ten minutes of
direct labor and 75 minutes of machine time. Fixed manufacturing
overheads total $3,500,000 per month. Forty percent of these fixed
manufacturing overheads are labor-related costs and the balance are
machine-related costs.
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