Question

Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation.

Chairs Desks Total
Direct Materials $4,000 $6,000 $10,000
Direct Labor 12,000 8,000 20,000
Also the company incurred $14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is? (Do not round intermediate calculations.)

Answer 1

To calculate the total cost of making chairs, allocate the overhead costs based on direct labor dollars, and add this to the direct materials and direct labor costs. The total comes to $24,400.

Step-by-step explanation:

The student is asking about the allocation of overhead costs in the manufacturing process of chairs and desks. To find the total cost of making chairs by Calgary Manufacturing company, we need to allocate the employee benefits cost based on the direct labor dollars. Given the direct labor cost for chairs is $12,000 and for desks $8,000, making the total labor cost $20,000, the allocation rate for overhead costs (employee benefits) per dollar of direct labor is $14,000 / $20,000 = $0.70. Therefore, the overhead cost allocated to chairs is $12,000 × $0.70 = $8,400. The total cost of making chairs is the sum of direct materials, direct labor, and allocated overhead costs, which is $4,000 + $12,000 + $8,400 = $24,400.