Brown’s Baskets makes decorative baskets for sale at local craft shops. Mary Brown, the owner and founder, has collected the following information on costs based on two years of operations and has asked you to help her analyze the behavior of her overhead costs. Mary summarized monthly data as two year totals:
|
Indirect materials |
$ 27,200 |
|
Indirect labor |
44,300 |
|
Lease |
56,000 |
|
Utilities (heat, light, etc.) |
19,200 |
|
Power to run machines. |
18,500 |
|
Insurance |
16,400 |
|
Maintenance |
14,500 |
|
Depreciation |
9,000 |
|
Total overhead |
$205,100 |
|
Direct labor hours |
12,000 |
|
Direct labor costs |
$180,000 |
|
Machine hours |
14,400 |
|
Units produced |
20,000 |
After visiting the workshop and discussing operations with Mary, you determine that three costs—indirect materials, indirect labor, and the power to run the machines—are variable. All other costs are fixed.
Prepare three analyses of overhead costs that, using the account analysis method, calculate the monthly average fixed costs and the variable rate per (1) direct labor hour, (2) machine hour, and (3) unit of output.