achary Manufacturing Co. expects to make 31,100 chairs during the year 1 accounting period. The company made 4,800 chairs in January. Materials and labor costs for January were $16,500 and $26,000, respectively. Zachary produced 1,800 chairs in February. Material and labor costs for February were $9,500 and $12,500, respectively. The company paid the $622,000 annual rental fee on its manufacturing facility on January 1, year 1. Required Assuming that Zachary desires to sell its chairs for cost plus 45 percent of cost, what price should be charged for the chairs produced in January and February

(a) $41.84 per chair

(b) $63.24 per chair

Explanation:

Given that,

Annual rental fee = $622,000

January:

Material cost = $16,500

Labor cost = $26,000

Number of chairs produced = 4,800

February:

Material cost = $9,500

Labor cost = $12,500

Number of chairs produced = 1,800

Overhead absorption rate:

= Annual rental fee : Budgeted production

= $622,000 : 31,100

= $20 per chair

For January:

Total cost for January:

= Material cost + Labor cost + Overhead (Number of chairs produced * Overhead per chair)

= $16,500 + $26,000 + (4,800 * $20 per chair)

= $16,500 + $26,000 + $96,000

= $138,500

Desired profit:

= 45% of cost

= 0.45 * $138,500

= $62,325

Total Value of goods = Profit + Cost

= $62,325 + $138,500

= $200,825

Price per chair:

= Total value : Quantity sold

= $200,825 : 4,800

= $41.84 per chair

For February:

Total cost for February:

= Material cost + Labor cost + Overhead (Number of chairs produced * Overhead per chair)

= $9,500 + $12,500 + (1,800 * $20 per chair)

= $16,500 + $26,000 + $36,000

= $78,500

Desired profit:

= 45% of cost

= 0.45 * $78,500

= $35,325

Total Value of goods = Profit + Cost

= $35,325 + $78,500

= $113,825

Price per chair:

= Total value : Quantity sold

= $113,825 : 1,800

= $63.24 per chair