Diamonds, Etc. manufactures jewelry settings and sells them to retail stores. In the past, most settings were made by hand, and the overhead allocation rate in the prior year was $12 per labor hour ($2,400,000 overhead / 200,000 labor hours). In the current year, overhead increased by $800,000 due to the acquisition of equipment. Labor, however, decreased by 40,000 hours because the equipment allows rapid creation of the settings. One of the company's many customers is a local jewelry store, Jasmine's Fine Jewelry. This store is relatively small, and the time to make an order of jewelry pieces is typically less than 10 labor hours. On such jobs (less than 10 labor hours), the new equipment is not used, and thus the jobs are relatively labor-intensive. a). Assume that in the current year, the company continues to allocate overhead based on labor hours. What would be the overhead cost of a 10-labor-hour job requested by Jasmine's Fine Jewelry? How does this compare to the overhead cost charged to such a job in the prior year? b). Assume that the price charged for small jobs does not change in the current year. Are small jobs less profitable than they were in the past?

Diamonds, Etc. manufactures jewelry settings and sells them to retail stores. In the past, most settings were made by hand, and the overhead allocation rate in the prior year was $12 per labor hour ($2,400,000 overhead / 200,000 labor hours). In the current year, overhead increased by $800,000 due to the acquisition of equipment. Labor, however, decreased by 40,000 hours because the equipment allows rapid creation of the settings. One of the company's many customers is a local jewelry store, Jasmine's Fine Jewelry. This store is relatively small, and the time to make an order of jewelry pieces is typically less than 10 labor hours. On such jobs (less than 10 labor hours), the new equipment is not used, and thus the jobs are relatively labor-intensive. a). Assume that in the current year, the company continues to allocate overhead based on labor hours. What would be the overhead cost of a 10-labor-hour job requested by Jasmine's Fine Jewelry? How does this compare to the overhead cost charged to such a job in the prior year? b). Assume that the price charged for small jobs does not change in the current year. Are small jobs less profitable than they were in the past?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 2CE: Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each...

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Sifton Electronics Corporation manufactures and assembles electronic motor drives for video cameras. The company assembles the motor drives for several accounts. The process consists of a lean cell for each customer. The following information relates to only one customer's lean cell for the coming year. For the year, projected labor and overhead was $4,847,000 and materials costs were $33 per unit. Planned production included 5,920 hours to produce 18,500 motor drives. Actual production for August was 1,850 units, and motor drives shipped amounted to 1,400 units. Conversion costs are applied based on units of production From the foregoing information, determine the cell conversion cost rate. Oa. $818.75 Ob. $262.00 Oc. $2,620.00 Od. $3,462.14
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