Question

1. Noelle’s Novelties estimated the following information pertaining to the manufacture of her baskets:

Direct Materials per Unit:                     3 lbs straw x $2.50 per lbs.

Direct Labor per Unit:                           2 Hours x $22.00 per Hour

Manufacturing Overhead:     Allocated based onDirect Labor Hours at a predetermined Overhead Rate of $18.50 per Direct Labor Hour

Required:

1. Calculate the standard cost to manufacture 1 basket.
2. If Noelle wants to be competitive in her pricing strategy, how much should be charge for 1 basket if she wants a 40% profit ABOVE her cost?

                            

Answer 1

a.

Direct Materials per Unit: = 3 lbs straw x $2.50 per lbs. = $ 7.5

Direct Labor per Unit: = 2  Hours x $22.00 per Hour = $ 44

Manufacturing Overhead: = 2 Hours x $18.50 = $ 37

Standard cost to manufacture 1 basket =  $7.5+$44+$37 = $88.5

Standard cost to manufacture 1 basket = $88.5

b.

Amount to charged for 1 basket to earn 40% profit above cost = $88.5 +$88.5*40% =$88.5 + $35.4 = $123.9

If Noelle wants to be competitive in her pricing strategy, she should charge $123.9 for 1 basket