Question

Parsons Company is planning to produce 2,800 units of product in 2017. Each unit requires 1.20 pounds of materials at $5.60 per pound and a half-hour of labor at $12.00 per hour. The overhead rate is 70% of direct labor. (a) Compute the budgeted amounts for 2017 for direct materials to be used, direct labor, and applied overhead. Direct materials $ Direct labor $ Overhead $ (b) Compute the standard cost of one unit of product. (Round answer to 2 decimal places, e.g. 2.75.) Standard cost $ Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

a. Budgeted amounts for 2017:                                           $

Direct material  (1.20 pounds x $5.60 x 2,800 units)  = 18,816                                                                                                                                                                                                                                  

Direct labour (0.5 hr x $12 x 2,800 units)                     = 16,800

Applied overhead (0.5 hr x  $8.40 x 2,800 units)        = 11,760

Budgeted amount for 2017                                                47,376

b. Standard Cost for One Unit of Product

                                                                                       $

Direct material ( 1.20 pounds @ $5.60 per pound) = 6.72    

Direct Labour  (0.5 hour @ $12 per hour)                 = 6.00

Overhead       (0.5 hours @  $8.40 per hour)           = 4.20

Standard cost for one unit of product                         16.92

                                                                                                                                             

Explanation:

The Budgeted amount for 2017 is the budgeted direct material cost , budgeted direct labour cost and budgeted overhead. Budgeted direct material cost is the product of standard quantity,  standard price and budgeted output.  Budgeted direct labour cost is the product of standard hours, standard rate and budgeted output. Budgeted  overhead is the product of standard hours, standard overhead rate and budgeted output.

The standard cost per unit of product is comprised of standard material cost per unit, standard labour cost per unit and standard overhead cost per unit.

Standard material cost per unit is the product of standard quantity and standard price. Standard labour cost per unit is the product of standard rate and standard hours. Overhead cost per unit is the product of standard overhead rate and standard hours. Standard overhead rate is 70% of $12 = $8.40.