In April 2005 Company A made (and sold) 1,200 leather collars and 2,400 nylon collars. Costs incurred in April 2005 are listed below:
Raw leather $1,800
Raw nylon 6,000
Buckles (one per collar) 2,700
Assembly line wages 10,800
All assembly line workers earn $15 / hour, but a leather collar takes twice as long to make as a nylon collar. The total cost of a leather collar is $11.00; a leather collar sells for $15.00. A nylon collar sells for $9.00. Any individual cost that comprises at least 5% of a product's total cost is considered direct.
For a nylon collar, the total direct material cost is:
My answer is $3.25 (7800/2400). Is it correct?
Please see the response to your posting as below:
Cost of buckle per collar = $2700/(1,200 leather collars + 2,400 nylon collars) ...
Given the information about raw material costs and assembly line wages, the solution calculates the direct material cost for one of two products.