Pluton Makes Particular Plastics for Sale to the Public and the Government

question 24

Multiple Choice

Pluton makes particular plastics for sale to the public and the government. Basic cost data for a 100-pound drum of one particular product called Xentra appears below: $\begin{array}{|l|r|r|}\hline & \text { Qty } & \text { Cost } \\\hline \text { Chemical Xeta, gals } & 15 & \$ 25.00 \\\hline \text { Chemical Thenta, gals } & 35 & \$ 27.50 \\\hline \text { Base material, Ibs } & 20 & \$ 1.00 \\\hline 100 \text {-lb lined drum } & 1 & \$ 51.83 \\\hline\end{array}$ Variable factory overheads are estimated to be $1,200,000 per month, when 1,000,000 pounds of various products are produced. The plant employs 20 chemical workers who typically work 175 hours each per month and are paid $24 per hour. Other workers are classified as indirect and are included in fixed overheads. The highly automated plant typically runs 21,000 machine hours per month. The preparation of one 100 lbs batch of Xentra needs ten minutes of direct labor and 75 minutes of machine time. Fixed manufacturing overheads total $3,500,000 per month. Forty percent of these fixed manufacturing overheads are labor-related costs and the balance are machine-related costs. Assuming normal production levels, what is the direct materials and direct labor cost (i.e., the prime cost) per drum?

• A)$1,433.33
• B)$1,413.33
• C)$1,313.33
• D)$1,293.33
• E)None of the above

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Definitions:

Flypaper Theory

A concept suggesting that government grants and subsidies stick where they first land, meaning they benefit the entity they're directly given to rather than being efficiently redistributed.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare, essentially focusing on who ultimately bears the cost of a tax.

Taxes Collected

The total amount of money garnered by a government through the imposition of taxes.

Corporate Income Tax

A tax imposed by a government on the income earned by companies.