Clay Co. produces ceramic coffee mugs and pencil holders. Manufacturing overhead is assigned to production using an application rate based on direct labor hours.
Required:
a. For 2010, the company’s cost accountant estimated that total overhead costs incurred would be $420,000 and that a total of 50,000 direct labor hours would be worked. Calculate the amount of overhead to be applied for each direct labor hour worked on a production run.
b. A production run of 400 coffee mugs used raw materials that cost $432 and used 40 direct labor hours at a cost of $10.00 per hour. Calculate the cost of each coffee mug produced.
c. At the end of October 2010, 280 coffee mugs made in the production run in part b had been sold and the rest were in ending inventory. Calculate (1) the cost of the coffee mugs sold that would have been reported in the income statement and (2) the cost included in the October 31, 2010, finished goods inventory.