Question

The Purple Peace Candle Company is reexamining its pricing based upon a recent report from a consultant. Currently, the company uses a volume based pricing system with direct labor hours as the cost driver. They are considering a system using machine hours as the cost driver. The company estimates the following:

• Estimated Total Direct Labor Hours: 50,000
• Estimated Total Machine Hours: 200,000
• Estimated Total Manufacturing Overhead: $2,000,000
• Each batch is produced in batches of 1,000 candles

The Batch ticket for Batch 197 for the Specialty Purple Candle shows the following:

Batch Number	197
Direct Labor - Candle Makers	Direct Material
John - 10 hours @ $10 per hour	Wicks - 20 spools @ $30 per spool
Barry - 15 hours @ $20 per hour	Wax - 100 pounds @ $2 per pound
Carla - 20 hours @ $15 per hour	Jars - 60 boxes @ $25 per box
Other Information:

2. Compute the cost of one candle using direct labor hours to allocated manufacturing overhead. Show and label all of your work, identifying all portions of the cost (round to the nearest penny). Use of the job cost sheets is optional.

Answer 1