Question: Please write two paragraphs discussing other options for the activity base and the importance of the MOH allocation for Fancy Millwork.  Do multiple product lines impact the MOH allocation?

?Fancy Millwork has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs. 

The following information shows Fancy Millwork's cost structure of 2018. The materials include $2,000 for the wood and other materials on a per job basis. It requires 40 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 80% on manufacturing costs. 

The company estimates that it will have 32,000 direct labor hours in total for the kitchen cabinets.  

It assumes 800 units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Hint: you need to distinguish between product costs (MOH) and period costs.

Salaries- office & administrative

 $ 400,000

Salaries for factory supervisors and janitors

$ 200,000

Office Rent

 $ 90,000

Factory Rent

 $  80,000

Office Utilities and Misc office expenses (based on units sold)

 $  20,000

Sales Travel (based on units sold)

 $  24,000

Insurance - office

 $  14,000

Depreciation - office equipment

 $  45,000

Depreciation for factory equipment

 $  70,000

Advertising

 $  15,000

Sales commissions (based on units sold)

 $  50,000

Factory Property taxes                      

 $  10,000

Maintenance for factory equipment

 $  80,000

 Question: Determine the average cost of manufacturing one custom kitchen given the units expected to be sold every year, assuming the MOH costs are allocated based on the direct labor hours per unit. Calculate the sales price based on your cost calculation. Please show all calculations and round to the nearest dollar.  I would recommend that you calculate the MOH per kitchen first. You should calculate an Overhead rate. 

Answer:

Question: Assuming Fancy Millwork is considering adding another line of product - bookshelves (keeping the Cabinet production constant at 800 units). Adding this line will require hiring a different type of worker which costs the company $15/hour.  Fancy Millwork estimated each unit takes 30 hours of labor, and $1,500 direct materials. This line is estimated to incur additional fixed MOH $466,250 for the year, and variable costs/expenses per unit are the same as the Cabinet product line. This bookshelf product line shares the fixed period costs/expenses with the Cabinet line. Fancy Millwork estimated sales price of each bookshelf would be $3,000. How many units should the company sell to make adding the additional line economically feasible/attractive (round to the closest integer)?  

Answer:

Fancy MillworkDirect Labor : 40 Hrs per job at $10 per Hr$400Direct Materials$2 , 000Direct Labor Hours$320, 000Manufacturing Overhead :`Overheard rate per hourAmountSalaries for factory supervisors and janitors$6. 25$ 200 , 000Factory rent$2.50 / 580 , 000 . 00Depreciation - factory equipment$2.19 / S70 , 000. 00Factory Property taxes50. 31 / 510 , 000 . 00Maintenance for factory equipment$2.50 / 580, 000. 00Total Manufacturing Overhead Per Unit$13.754.40, 00040 Hrs$550Total Product Cost Per Unit$2 , 95080%$2 , 360Sales Price$5 , 310 FANCY MILWORK CO .CVP Income Statement :"RevenueCabinets ( 800 units @ $5 , 310 sales price )$4 , 248, 000Bookshelves ( 500 Units @ 3000 sales price )$1 , 500 , 000Total Revenue :"$5, 748, 000|Variable Expenses per unit :"Direct labor cost Cabinets$320, 000Direct labor cost Bookshelf*$225, 000Direct materials cost Cabinets$1, 600 , 000Direct materials cost Bookshelf$750 , 000Office Utilities and Misc office expenses$32, 500Sales Travel$39 , 000Sales commissions$81 , 250Total variable cost ."$3, 047, 750|Unit contribution margin$2, 700, 25047%"ixed CostsSalaries for factory supervisors and janitors$200, 000Factory Rent$80 ,000Depreciation for factory equipment$70, 000Factory Property taxes$10, 000Maintenance for factory equipment$80, 000Salaries - Office & Administrative$400 , 000Office Rent*$90 ,000Insurance - office$ 1 4 , 000Depreciation - office equipment$45 , 000Advertising*$15 , 000Additional MOH$466 , 250Total Fixed Costs$1, 470, 250Operating Income$1 , 230, 000Before / After Analysis : Additional Operating Income*