Question

Based on the product Chocolate mints that are for candy for  sale in retail. Answer the following questions.

• What are the major material inputs into the product? Pick one type of material used to make this product and find out how much it costs. List one decision that managers might make based on the cost of materials.

• Is there any direct labor involved in making Chocolate mints? How about any indirect labor? What is the difference?

• List three examples of manufacturing overhead that you found regarding chocolate mints. How does manufacturing overhead differ from direct materials and direct labor?

• How much do you think it costs to make a single unit of this product? List two decisions that managers would make based on the cost of the product.

• List two costs the company incurs that are not related to making the product. How and why are these costs treated differently than the manufacturing costs identified previously?

Answer 1

a) The raw materials that go into chocolate mint are Sugar, Cocoa powder, Natural and Artificial favours, colors, etc. The approx price of sugar is $0.01 per 1 ounce or $0.26 USD per 1 kilogram. Based on the cost of material the manager would decide what is the gross margin required for the product

b) Yes direct labor is the labor that is directly deployed in the factory in production lines, shop floor, assembly lines and packing line. Indirect labor includes labor engaged in material handling and moving the finished goods. Direct labors are directly engaged in production activities and indirect labor is indirectly engaged in production activities.

c) Three examples of manufacturing overheads

· Depreciation on plant equipment

· Factory insurance, rates and taxes

· Factory repairs and maintenance

Manufacturing overheads the overheads incurred in facilitating the production activities. They are not directly associated with the product manufactured but indirectly associated with the production activities.

d) Assuming the selling price of product is $0.10 and if gross margin of 50% is needed the cost of chocolate mint is $0.05 per unit. The 2 decisions that mangers would make based on cost of the product

· Determine the selling price of the product

· Continue or discontinue the product depending on the profitablity of the product

e) 2 costs that are not related making the product

· Selling expenses – commission, sales people salaries

· Administrative expenses – Office rent, office buildings depreciation

These costs are period costs and they are not incurred in manufacturing the product. Hence they are charged to Income statement in the period in which it is incurred.