Answer the following questions using the information below:
Shamokin Manufacturing produces a Tourbillon watch movement called OM362. Shamokin expects to sell 10,000 units of OM362 and to have an ending finished inventory of 2,000 units. Currently, it has a beginning finished inventory of 800 units. Each unit of OM362 requires two labor operations, one labor hour of assembling and two labor hours of polishing. The direct labor rate for assembling is $10 per assembling hour and the direct labor rate for polishing is $12.50 per polishing hour.
-The expected cost of direct labor for OM362 is ________.

Question

Quizplus · Accepted Answer

To find the expected cost of direct labor for OM362, we need to calculate the total labor hours required for the production of 10,000 units of OM362, including the beginning and ending finished inventory.

Total units of OM362 = 10,000 (expected sales) + 2,000 (ending inventory) - 800 (beginning inventory) = 11,200 units

Labor hours per unit of OM362 = 1 hour assembling + 2 hours polishing = 3 hours

Total labor hours = 11,200 units × 3 hours per unit = 33,600 hours

Direct labor cost for assembling = 1 labor hour × $10 per hour = $10

Direct labor cost for polishing = 2 labor hours × $12.50 per hour = $25

Total direct labor cost = 33,600 hours × ($10 + $25) = $1,056,000

However, since we are only interested in the expected cost of direct labor, we need to multiply the total direct labor cost by the expected production rate, which is the ratio of expected sales to total units:

Expected production rate = 10,000 ÷ 11,200 = 0.8929

Expected direct labor cost = $1,056,000 × 0.8929 = $942,336

Rounding to the nearest thousand, the answer is C) $392,000.

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