Comfort Company produces leather office chairs The standard cost per
Comfort Company produces leather office chairs. The standard cost per chair is as follows:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35
Direct labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Variable overhead (2 machine-hours at $4.00)* . . . . . . . . . . . . . . . . . . . 8
Fixed overhead (2 machine-hours at $8.00)* . . . . . . . . . . . . . . . . . . . . . 16
Total standard cost per chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74
*Overhead rates are based on a denominator activity level of 30,000 machine-hours. During 2015, Comfort Company produced and sold 12,000 office chairs. Management believes that the denominator level of activity represents 75% of theoretical capacity and 80% of practical capacity.
Required:
1. Calculate the total overhead costs at the following levels of activity: theoretical, practical, denominator, and actual (2015).
2. Assuming Comfort Company can sell all of the chairs it can produce for $100 per unit, calculate the opportunity loss of producing 12,000 chairs in 2015 compared to the following capacity utilization alternatives: theoretical, practical, and denominator.
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