Question

Consolidated Yarns and Knits produces knitted jersey fabrics and two of their products are produced in their Entenhausen facility. These two fabrics are of identical construction, but they are made from different yarns: one is made from a den 100 f 24 polyester yarn, the other from a den 100 f 23 Kevlar® yarn. The Kevlar® yarn is quite abrasive, causing knitting needles to wear out much faster. This results in higher downtime, more maintenance time for changing the needles, and higher auxiliaries costs for replacing needles. Downtime, maintenance cost, and auxiliaries are considered manufacturing overhead in this plant, and the total cost for these items in the plant is S18,000 each month. The following information is known about the products Product Sets of Needles Maintenance Monthly Preventive Cleanings 10 Hours 80 240 $10,000.00 Production 250,000 yd. 200,000 yd. olyester Knit Kevlar Knit 20 ost per pool $5000.00 $3000.00 The company decides to use the maintenance hours should be the allocation key for all overhead cost. What would be the overhead cost for the Kevlar knit per yard, if the overhead cost were allocated using maintenance hours as the key? Select one a. S/yd. 0.03 b. S/yd. 0.0375 O C. S/yd. 13,500.00 O d. S/yd. 7,500.00 Oe. S/yd. 0.0675 0

Answer 1

Total Overhead Cost = $ 18,000

Total Maintenance Hours = 80 +240

= 320 Hours

overhead cost for kevlar knit = Total Overhead Cost /Total Maintenance Hours * Total Maintenance Hours for Kevlar

= $ 18,000 / 320 * 240

= $ 13,500

Hence  overhead cost for kevlar knit per yard= overhead cost for kevlar knit / Total Yard of Kevlar

= $ 13,500 / 200,000

= $0.0675

Hence the correct answer is e. $ /yd. 0.0675