Question

please explain how you calculate question 3-5 in detail. I am having trouble especially with number 4 and how you arrive at a total of 388 for the basic model and advanced as well. thank yoh

Synthetic Fibers Inc. calculated using the cost-plus criteria specified is greater than the maximum bid of $25 per blanket allowed. Discuss the factors that management should consider before deciding whether to submit a bid at the maximum acceptable price of $25 per blanket. (CMA, adapted) Problem 15-47 Product Cost Distortion and Product Pricing: Departmen- tal Overhead Rates (LO 15-3, 15-7) Sounds Fine, Inc. manufactures two models of stereo speakers. Cost estimates for the two models for the coming year are as follows: Basic Model Advanced Model Direct material $260 $160 1, Predetermined overhead rate: $10 per direct-labor Direct labor (10 hours at $14 per hour) 140 140 Manufacturing overhead 100 100 hour Total cost $400 $500 5. Price, Advanced Model: $588.80 "The predetermined overhead rate is $10 per direct labor hour EX Each stereo speaker requires 10 hours of direct labor. Each Basic Model unit requires two hours in Department I and eight hours in Department II. Each unit of the Advanced Model requires eight hours in Department I and two hours in Department II. The manufacturing overhead costs expected during the coming year in Departments I and II are as follows: Department $8 per direct-labor hour Department I $4 per direct-labor hour Variable overhead $150,000 $150,000 Fixed overhead The expected operating activity for the coming year is 37,500 direct-labor hours in each department Required: 1. Show how Sounds Fine, Inc. derived its plantwide predetermined overhead rate of $10 per direct- labor hour 2. What will be the price of each model stereo speaker if the company prices its products at absorp- tion manufacturing cost plus 15 percent? 3. Suppose Sounds Fine, Inc. were to use departmental overhead rates. Compute these rates for Departments I and II for the coming year.

Answer 1

3)	Particulars			Dept. I	Workings	Dept. II	Workings
	Variable OH			$ 300,000.00	($ 8 x 37500)	$ 150,000.00	($ 4 x 37500)
	Fixed OH			$ 150,000.00		$ 150,000.00
				$ 450,000.00		$ 300,000.00
	Total DL Hours			37500		37500
	Departmental Rates			$           12.00		$             8.00

4)	Particulars			Basic	Workings	Advanced	Workings
	Direct Material			$ 160.00		$ 260.00
	Direct Labor			$ 140.00		$ 140.00
	Manu. OH
	Dept I			$   24.00	(2 hrs x $ 12)	$   96.00	(8 hrs x $ 12)
	Dept II			$   64.00	(8 hrs x $ 8)	$   16.00	(2hrs x $ 8)
	Product Cost			$ 388.00		$ 512.00

5)	Particulars			Basic	Advanced
	Product Cost			$ 388.00	$ 512.00
Add:	Profit @ 15%			$   58.20	$   76.80
	Selling price			$ 446.20	$ 588.80