Sherman,Inc.manufactures chainsaws that sell for $58.Each chainsaw uses $10 in direct materials and $3 in direct labor per unit.Sherman has two activities: Machining,which is applied at the rate of $2 per machine hour,and Finishing,which is applied at the rate of $20 per batch.This month,Sherman made 200 chainsaws,using 1,000 machine hours in 40 batches.What is the gross profit for one chainsaw?
A)$13
B)$27
C)$31
D)$47

Question

Quizplus · Accepted Answer

Total direct cost per unit = $10 (direct materials) + $3 (direct labor) = $13
Total overhead cost per unit = $2 (machining rate per machine hour) x 1,000 (total machine hours) / 200 (total units) + $20 (finishing rate per batch) x 40 (total batches) / 200 (total units) = $4 + $4 = $8
Total cost per unit = $13 (direct cost) + $8 (overhead cost) = $21
Gross profit per unit = $58 (selling price) - $21 (total cost per unit) = $37
Therefore, the gross profit for one chainsaw is $37.