EXERCISE 1017 Capacity Analysis [LO7] Comfort Company produces leather office chairs. The… 1 answer below »
EXERCISE 10–17 Capacity Analysis [LO7]
Comfort Company produces leather office chairs. The standard cost per chair is as follows:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35
Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Variable overhead (2 machine-hours at $4.00)* . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Fixed overhead (2 machine-hours at $8.00)*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Total standard cost per chair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74
During 2015, Comfort Company produced and sold 12,000 office chairs. Management believes that the denominator level of activity represents 75% of theoretical capacity and 80% of practical capacity. Required:
1. Calculate the total overhead costs at the following levels of activity: theoretical, practical, denominator, and actual (2015).
2. Assuming Comfort Company can sell all of the chairs it can produce for $100 per unit, calculate the opportunity loss of producing 12,000 chairs in 2015 compared to the fol- lowing capacity utilization alternatives: theoretical, practical, and denominator.
