Develop the full cost of a simple item.

$1.$ Choose a simple, everyday household item $($i$.$e$.$ loaf of bread, fabric placemat, broom$)$ to investigate its full cost.

$2.$ Describe the product and why it was chosen.

$3.$ Identify all direct and indirect materials used in production.

$4.$ Identify the different production stages and the labor requirements for each stage.

$5.$ Calculate the overhead.

$6.$ You will use the material, labor, and overhead amounts to calculate the production cost per unit.

$7.$ Find the selling price for your product.

$8.$ Assumptions:

a$.$ Production will be in your personal kitchen or workshop, therefore no rent expense will be incurred.

b$.$ Use the fixed amount of $$100$ per month for the additional utilities expense that will be incurred in the production of your product.

c$.$ No additional major machinery$/$equipment will need to be purchased. Small tools and equipment such as hammers or cookie sheets may be lumped together. They will be considered to have a limited one year life with no salvage value.

d$.$ The federal minimum wage should be used as the labor cost per hour.

e$.$ Assume no indirect labor.

$9.$ Requirements:

a$.$ Written portion of the project should be $5-6$ pages, including the spreadsheets $($but not including the cover page$)$

b$.$ Written portion to include:

i$.$ Why product was chosen?

ii$.$ How cost was derived $($where materials were obtained, etc.$)?$

iii. How was price determined?

iv$.$ Why your classmates should purchase your product? $($Sell it $$ this part should be fun!$)$

Find the direct material cost.

Direct Material Size of Package Cost for Entire Container Unit Size Cost per Unit

Example: flour $5$ lbs$/22\mathrm{.}5$ cups $$2,501$ cup $$0,11$

$3)$ How many units will be manufactured per production run?

$4)$ List amounts of all direct materials used in production per production run.

Direct Material Cost per Unit $($from part $2$ above$)$ Quantity Used per Production Run Cost per Production Run

Example: flour $$0,112$ cups $$0,22$

Total direct material cost per production run

$5)$ List amounts of all indirect materials used in production per month.

Indirect Material Size of Package Cost for Entire Container Amount Used per Month Cost per Month

Example: paint $5$ gallons $$20,001$ gallon $$4,00$

Total indirect material cost per month

$6)$ List all small tools and equipment tht must be purchased.

Small Tools and Equipment Cost

Total cost of small tools and equipment

$7)$ What are the labor requirements?

Production Stage Hours per Production Run Labor Cost per Stage

Total labor hours per production run

Total labor cost per production run

$8)$ How many production runs per month?

$9)$ What are the estimated labor hours for the entire month?

$10)$ Find the estimated manufacturing overhead costs for a month:

Estimated Manufacturing Overhead Costs Cost

Utilities

Indirect materials $($section $5)$

Small tools$/$equipment monthly depreciation $($compute using section $6$ information$)$

Total estimated monthly manufacturing overhead cost

$11)$ Using labor hours as the activity base, find the overhead application rate.

Total estimated monthly manufacturing overhead cost $($section $10)$

Total estimated monthly labor hours $($section $9)$

Overhead application rate

$12)$ Find the applied overhead per production run

Labor hours per production run $($section $7)$

Overhead application rate $($section $11)$

Applied overhead

$13)$ Find the product cost

Direct Materials Cost per production run $($section $4)$

Direct Labor Cost per production run $($section $7)$

Applied Overhead per production run $($section $12)$

Total product cost per production run

Units manufactured per production run$($section $3)$

Unit Cost

$14$ Pricing Decisions

Be sure to include how the product will be packaged $($how many per package, etc.$)$

How did you arrive at the selling price?