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Standard Cost Absorption and Cost Per Package

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A cost analyst for Stamper Manufacturing Co. has assembled the following data about the Model 24 stamp pad:

The piece of sheet metal from which five pad cases can be made costs $0.24.

This amount is based on the number of sheets in a 4,200-pound bundle of sheet metal, which is the usual purchase quantity.

The foam pad that is put in the case costs $0.06, based on the number of pads that can be cut from a large roll of foam.

Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 1,000 pads by two workers in an eight-hour shift. The standard direct labor pay rate is $15 per hour.

Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $16 per direct labor hour, of which $6 per hour is fixed manufacturing overhead.

Required:
(a) Calculate the standard absorption cost of a package of 10 stamp pads. (Do not round your intermediate calculations. Round final answer to 2 decimal places. Omit the "$" sign in your response.)

(b) Stamper Manufacturing Co.'s management is considering a special promotion that would result in increased sales of 500 packages of 10 pads per package. Calculate the cost per package that is relevant for this analysis. (Do not round your intermediate calculations. Round final answer to 2 decimal places. Omit the "$" sign in your response.)

Please view the attached file for full details.

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Solution Summary

The attached file contains an analysis of the standard cost absorption policies of the Stamper Manufacturing Company, and the effects of various changes to the CVP equation on the financial standing of the company.

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