Question

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates: Direct labor-hours required to support estimated production 140,000 Machine-hours required to support estimated production 70,000 Fixed manufacturing overhead cost $ 784,000 Variable manufacturing overhead cost per direct labor-hour $ 2.00 Variable manufacturing overhead cost per machine-hour $ 4.00 During the year, Job 550 was started and completed. The following information is available with respect to this job: Direct materials $ 175 Direct labor cost $ 225 Direct labor-hours 15 Machine-hours 5

Answer 1

The total cost of each method of production can be calculated by multiplying the labor cost by the number of labor hours and adding it to the cost of the machine multiplied by the number of machine hours. The firm should use the second method with a lower total cost of $550 because it would be more cost-effective.

Step-by-step explanation:

The total cost of each method of production can be calculated by multiplying the labor cost by the number of labor hours and adding it to the cost of the machine multiplied by the number of machine hours.

For the first method, with a cost of labor of $40 and a cost of the machine of $80, the total cost would be $600.

For the second method, with a cost of labor of $40 and a cost of the machine of $50, the total cost would be $550.

The firm should use the second method with a lower total cost of $550 because it would be more cost-effective.