Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 55

Standard absorption cost per unit 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.

---

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.

Step 1 of 3

The calculations of standard absorption cost for a package of 10 stamp pads is as follows: