Question

23.

Wood Products manufactures banquet tables. The following information pertains to the company's normal operations per month:

Output units 20,000 tables

Machine-hours 8,000 hours

Direct manufacturing labor-hours 10,000 hours

Direct materials per unit $105   

Direct manufacturing labor per hour $10     

Variable manufacturing overhead costs $322,500        

Fixed manufacturing overhead cos $1,200,000     

Improved Product and process design costs $1,100,000     

Marketing and distribution costs $1,125,000

Assuming the Marketing and distribution costs and the Improved Product and process design costs are 100% variable costs, and Wood Products targets a minimum 50% contribution margin, what is the minimum price that Wood Products should charge for its tables?

Select one:

a. $372.26

b. $594.76

c. $474.76

d. None of these is correct

Answer 1

Direct materials per unit = $105  

Direct manufacturing labor per hour= $10    

Direct manufacturing labor-hours = 10,000 hours

Output = 20,000 units

Total direct material cost = Direct materials per unit x Output

= 105 x 20,000

= $2,100,000

Total direct labor cost = Direct manufacturing labor per hour x Direct manufacturing labor-hours

= 10 x 10,000

= $100,000

Variable manufacturing cost = $322,500

Improved Product and process design costs = $1,100,000

Marketing and distribution costs= $1,125,000

Total variable costs = Total direct material cost+Total direct labor cost+Variable manufacturing cost+ Improved Product and process design costs+ Marketing and distribution costs

= 2,100,000+100,000+322,500+1,100,000+1,125,000

= $4,747,500

Variable cost per unit = Total variable costs/Output

= 4,747,500/20,000

= $237.375

Contribution margin ratio = 50%

Since contribution margin ratio is 50%, hence, variable cost must be 50% of sales.

Variable cost per unit = Selling price per unit x 50%

237.375 = Selling price per unit x 50%

Selling price per unit = $474.76

The minimum price that Wood Products should charge for its tables = $474.76

Correct option is c.

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!