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Kandy Harts manufactures custom T-shirts. Each T-shirt can be imprinted front and back with...

Question:

Kandy Harts manufactures custom T-shirts. Each T-shirt can be imprinted front and back with photos, company logos or other information. Each T-shirt requires 2 ounces of ink, 15 minutes of direct labor (processing, folding, packaging), and a plastic bag for packaging. The following information is available regarding costs:

Short-sleeve T-shirts, 100-pack $350.00
Long-sleeve T-shirts, 100-pack 400.00
Direct labor, per hour 16.00
Ink, 32-ounce bottle 16.00
Plastic bags, 100-pack 8.00

Kandy applied overhead at a rate of $9.40 per direct labor hour, and fringe benefits for workers are an additional 20% of wages.

What is the standard price of producing one short-sleeve T-shirt?

Standard Cost:

The standard price of inventory refers to the sum of the standard manufacturing costs required to produce an item. These costs include items such as direct materials, direct labor, and manufacturing overhead. These standard costs are later compared to actual costs to identify positive or negative variances.

Answer and Explanation:

Item Total Cost Formula Per Unit Cost
Short-sleeve T-shirts, 100-pack $350.00 $350 / 100 $3.50
Direct labor, per hour 16.00 $16 x (15 min / 60 min) $4.00
Ink, 32-ounce bottle 16.00 $16 x (2 oz / 32 oz) $1.00
Plastic bags, 100-pack 8.00 $8 / 100 $0.08
Overhead 9.40 $9.40 x (15 min / 60 min) $2.35
Fringe benefits 20% x $4 direct labor cost $0.80
Total = $11.73

We find that the standard price of producing one short-sleeve T-shirt is equal to $11.73.


Learn more about this topic:

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How Companies Set Standard Costs

from Accounting 301: Applied Managerial Accounting

Chapter 13 / Lesson 2
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