Maya Jewelry is a not-for-profit firm in Miami that employs recent immigrants from Guatemala to produce Mayan-style jewelry that is sold exclusively in the United States. Profits from Maya Jewelry support the immigration, settlement, support, education, and housing of Guatemalans in the United States. Maya produces two types of products: bracelets and necklaces, both made from silver and semi-precious stones. Guatemalan artisans hand-assemble the jewelry using native Central American Indian motifs by Guatemalan designers. Although each bracelet and necklace is unique and slightly different depending on the precious stones and the crafter, each bracelet and necklace should conform to the following budgeted costs for next year:
(per jewelry item) Bracelet Necklace
Budgeted variable selling cost $11.50 $17.35
Budgeted direct materials $53.85 $78.25
Budgeted direct labor hours 3 7
Maya expects to produce 4,550 bracelets and 1,720 necklaces next year, and budgets direct labor cost (i.e., its artisans who produce both bracelets and necklaces) of $16.00 per direct labor hour. Fixed manufacturing overhead is budgeted at $675,000, and fixed selling costs are budgeted at $125,000. Variable manufacturing overhead is budgeted at $1.75 per direct labor hour. Maya uses a flexible budget to estimate budgeted manufacturing overhead, and computes a plantwide overhead rate using direct labor hours as the allocation base.
a. Compute Maya’s overhead rate for next year.
b. During the first week of the next year, Maya produces 85 bracelets and 37 necklaces. The bracelets required 268 direct labor hours, and the necklaces required 264 direct labor hours. How much manufacturing overhead will be absorbed into Work-in-Process invento-ries during the first week of next year?
c. During the year, Maya produced 4,800 necklaces using, on average, 3.12 direct labor hours and 1,670 necklaces using, on average, 6.82 direct labor hours per necklace. Total manu-facturing overhead incurred during the year amounted to $733,756. Calculate the over- or underabsorbed overhead for the year.
d. Early in January, an Australian jewelry company with 28 stores in Australia comes to Maya with an offer to purchase 500 bracelets for $130 each and 250 necklaces for $215 each. Moreover, the Australian company is prepared to sign a contract that it will not resell the Maya jewelry back into the United States. Maya determines that it has enough capac-ity to accept the Australian offer and that accepting the offer does not alter any of Maya’s budgeted costs. Moreover, because Maya sells its jewelry directly to the Australian com-pany, it will not have to incur any selling expenses. Should Maya accept the offer? (Pro-vide computations to support your decision.)