MAA262 – Management Accounting Assessment Task 1

Question 4

In the current year, Koren and Jingran were approached by a student apartment manager who wants to buy 50 beds to furnish the newly built apartments. Koren and Jingran want to know the manufacturing costs for this job, considering Sleep Well Inc. has a production budget of 600 beds for the current year. For allocating the manufacturing overhead (i.e., indirect cost pool), Sleep Well Inc. uses the direct labor hours for assembling and woodwork (i.e., cost-allocation base), but Jonathan is struggling with how to apply job costing to the product cost of these beds and thus has asked for your help.

Required

a) Regarding this specific job, calculate per unit direct manufacturing cost, the manufacturing overhead rate per allocation base, the indirect manufacturing costs allocated for each bed, and the per unit manufacturing cost for these beds. (Job costing in manufacturing, Chapter 3, 5 marks)

b) Considering the industry benchmark for manufacturing overhead for similar jobs is 300% of direct material cost, identify whether this job has a manufacturing overhead lower or higher than a similar job using the industry benchmark. Briefly explain what could cause a difference. (Job costing in manufacturing, Chapter 3, 5 marks)

c) The apartment manager offers to purchase the 50 beds at $800 per bed, which he claims is much higher than the product cost for these beds. Considering the actual figures for the current year follow what has been budgeted, will Sleep Well Inc. be profitable if Koren and Jingran use the $800 as the selling price for all sales during the current year? Use your calculations for supporting your argument. When the selling price is higher than the per-unit product cost, will the business always be profitable? (Chapter 2, 10 marks)