Question

Stefani Company has gathered the following information about its product.

Direct materials: Each unit of product contains 3.40 pounds of materials. The average waste and spoilage per unit produced under normal conditions is 0.60 pounds. Materials cost $2 per pound, but Stefani always takes the 2.00% cash discount all of its suppliers offer. Freight costs average $0.25 per pound.

Direct labor. Each unit requires 1.00 hours of labor. Setup, cleanup, and downtime average 0.20 hours per unit. The average hourly pay rate of Stefani’s employees is $12.70. Payroll taxes and fringe benefits are an additional $2.00 per hour.

Manufacturing overhead. Overhead is applied at a rate of $6.40 per direct labor hour.

What is the standard cost per unit?

Answer 1

Material Cost (A)

Material required to each unit = 3.40 pounds and normal waste is 0.6 pounds. So, total material required is 4 pounds

Material cost = $2 less 2% cash discount = $1.96 Fright cost = .$0.25 per pound. So, total cost is $2.21

Material Cost per unit (A) = 4*$2.21 = $ 8.84

Labor Cost (B)

Each unit require 1 hours of labor and setup, cleanup and downtime average is 0.20. Total hour required per unit is 1.20 hours

Cost per hour is $12.70 + $2(Payroll taxes and fringe benefits) = $14.70

Labor cost per unit(B) = 1.20 hours * $14.70 = $17.64

Overhead cost per direct labor hour is $6.40

Overhead cost per unit (C) = 1.20 hours* $6.40 = $7.68

Standard cost per unit = (A)+(B)+(C) = $8.84+$17.64+$7.68 = $34.16