Question

Five Card Draw manufactures and sells 23,000 units of Diamonds, which retails for $180, and 26,000 units of Clubs, which retails for $190. The direct materials cost is $26 per unit of Diamonds and $31 per unit of Clubs. The labor rate is $25 per hour, and Five Card Draw estimated 124,000 direct labor hours. It takes 2 direct labor hours to manufacture Diamonds and 3 hours for Clubs. The total estimated overhead is $496,000. Five Card Draw uses the traditional allocation method based on direct labor hours.

A. What is the gross profit per unit for Diamonds and Clubs?

B. What is the total gross profit for the year?

Answer 1

To calculate the overhead cost per direct labor hour, divide the total estimated overhead ($496,000) by the total direct labor hours (124,000):

$496,000 / 124,000 = $4.00 per direct labor hour

Next, calculate the total direct labor cost for Diamonds:

23,000 units * 2 direct labor hours per unit = 46,000 direct labor hours

46,000 direct labor hours * $25 per hour = $1,150,000

And for Clubs:

26,000 units * 3 direct labor hours per unit = 78,000 direct labor hours

78,000 direct labor hours * $25 per hour = $1,950,000

Now, calculate the total direct material cost for Diamonds:

23,000 units * $26 per unit = $598,000

And for Clubs:

26,000 units * $31 per unit = $806,000

Finally, calculate the total cost for Diamonds by adding direct material cost, direct labor cost, and overhead cost:

$598,000 + $1,150,000 + ($46,000 direct labor hours / 124,000 total direct labor hours) * $496,000 = $2,294,000

And for Clubs:

$806,000 + $1,950,000 + ($78,000 direct labor hours / 124,000 total direct labor hours) * $496,000 = $3,250,000

Explanation: