Old Hands, Ltd., assembles clock movements for grand-father clocks. Each movement has four components: the clock facing, the clock hands, the time movement, and the spring assembly. For the current year, the company used the following standard costs: clock facing, $15.90; clock hands, $12.70; time movement, $66.10; and spring assembly, $52.50. Prices of materials are expected to change next year. Old Hands will purchase 60 percent of the facings from Company A at $18.50 each and the other 40 percent from Company B at $18.80 each. The clock hands are purchased from Hardware, Inc. and will cost $15.50 per set next year. Old Hands will purchase 30 percent of the time movements from Company Q at $68.50 each, 20 percent from Company R at $69.50 each, and 50 percent from Company S at $71.90 each. The manufacturer that supplies Old Hands with spring assemblies has announced that it will increase its prices by 20 percent.

1. Determine the total standard direct materials cost per unit for next year.
2. Suppose that because Old Hands has guaranteed Hardware that it will purchase 2,500 sets of clock hands next year, the cost of a set of clock hands has been reduced by 20 percent. Find the total standard direct materials cost per clock.
3. Suppose that to avoid the increase in the cost of spring assemblies, Old Hands purchased substandard ones from a different manufacturer at $50 each; 20 percent of them turned out to be unusable and could not be returned. Assuming that all other data remain the same, compute the total standard direct materials unit cost. Spread the cost of the defective materials over the good units produced.

  • CreatedMarch 26, 2014
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