[SOLVED] Stylish Ltd sells two models of coffee tables: Casual and Deluxe. | SolutionInn

Question: Stylish Ltd sells two models of coffee tables: Casual and Deluxe. Direct materials inventory and finished goods inventory are costed using the first-in first-out (FIFO) Stylish Ltd sells two models of coffee tables: Casual and Deluxe. Direct materials inventory and finished goods inventory are costed using the first-in first-out (FIFO) method. Unit costs of direct materials purchased and unit costs of finished goods sold remain unchanged throughout the budget year. There are two types of direct materials namely XX and YY; XX is the material used as the legs of the table and YY is the materials used as the surface top of the table. The height of the table is one meter. Direct manufacturing labour workers are hired on an hourly basis and no overtime is normally allowed for. Frank Morton, one of the workers, who frequently exceeds 40 hours per week, thus receiving overtime. The CEO Luis Franco and Julius Frino, the manufacturing manager is generally happy with Frank’s works, but the manager talks to Frank constantly about working more quickly. Frank’s overtime causes the actual direct labour costs to exceed the direct labour cost budget almost every month (reporting period). Direct manufacturing labour-hours is the cost driver for the variable portion of manufacturing operations overhead. The fixed component of manufacturing operations overhead is tied to the manufacturing capacity of 300,000 direct manufacturing labour-hours that Stylish has planned for 2017. Setup labour-hours is the cost driver for the variable portion of machine setup overhead. The fixed component of machine setup overhead is tied to the setup capacity of 15,000 setup labour-hours that Stylish has planned for 2017. There are two cost drivers for manufacturing overhead costs – direct manufacturing labour- hours and setup labour-hours. Stylish allocates all (variable and fixed) manufacturing overhead costs using direct manufacturing labour hours and machine setup overhead costs using setup labour-hours. The manufacturing direct labour hours overhead costs budget for the year ending 30 June 2017 is $9,000,000 and the machine setup overhead costs budget is $3,000,000. Stylish Ltd applies activity-based budgeting whereby the number of ‘Casual’ tables to be produced in batch is 50 while the number of ‘Deluxe’ tables to be produced in batch is 40. The setup time per batch is 10 hours for ‘Casual’ table and 12 hours for ‘Deluxe’ table. Non-manufacturing costs consist of product design, marketing, and distribution costs. All product design costs are fixed costs for 2017. The variable component of marketing costs equals the 6.5% sales commission on revenues paid to salesperson. The variable portion of distribution costs is $2 per cubic meter of tables moved.