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This Is a Comprehensive Problem Comparing Absorption Costing and ABC.It

question 14

Multiple Choice

This is a comprehensive problem comparing absorption costing and ABC.It is suggested that as you progress through the problem,keep track of the correct solutions,because these values will be used again later in the problem set. Dehli Inkstone specializes in inkstone creation.Each finished inkstone needs 1½ pounds of special materials which cost $20 a pound.(One pound contains 16 ounces. ) Drilling requires 1 direct labor hour for which workers are paid $10 per hour,and 40 minutes of machine time.The preliminary product (a 'basic') is inspected to ensure that it is sound.Fifteen percent of the basics are rejected.It is not possible to rework these,and they have no salvage value.Each approved stone is handed to a master craftsperson who spends two hours making a 'Standard' product or three hours creating a 'Masterpiece'.Standards use half an hour of machine time and Masterpieces one hour.Finished inkstones are inspected again before packing.Four percent of finished products fail the final quality control assessment and are destroyed.Crafts persons are paid $18 per hour.It takes a 'basic' worker six minutes to package each inkstone in bubble wrap and a shipping carton,which cost 50 cents in materials and weigh 6 ounces in total.
Total overheads are estimated to be $587,400 per year and 97,900 direct labor hours are budgeted.Production plans for the year call for 60% of output to be Standard inkstones and the balance Masterpieces.
Which is the full (absorption) cost of a Masterpiece inkstone,if direct labor dollars are used as the cost driver? (Round overhead absorption rate to 3 decimal places) .

Definitions:

Sinking Fund

A reserve fund established by setting aside revenue over a period of time to fund a future capital expense or repay a long-term debt.

Year-end Amounts

Refers to the final recorded figures of financial accounts at the end of the fiscal year, important for financial reporting and analysis.

Compounded Annually

Interest calculation method where the interest is added to the principal sum at the end of each year, so that the balance also earns interest in the following year.

Yearly Contributions

Refers to the payments or investments made annually into a plan or fund, often for retirement or savings purposes.