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Knickknack, Inc., manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate based on direct-labor hours. Production and product-costing data are as follows:

	Odds			Ends
Production quantity		1,000	units		5,000	units
Direct material	$	160		$	240
Direct labor (not including setup time)		120	(4 hr. at $30)		180	(6 hr. at $30)
Manufacturing overhead*		384	(4 hr. at $96)		576	(6 hr. at $96)
Total cost per unit	$	664		$	996

*Calculation of predetermined overhead rate:

Manufacturing overhead budget:
Machine-related costs	$	1,800,000
Setup and inspection		720,000
Engineering		360,000
Plant-related costs		384,000
Total	$	3,264,000

Predetermined overhead rate:

Budgeted manufacturing overhead	=	$3,264,000
			= $96 per direct-labor hour
Budgeted direct-labor hours		(1,000)(4) + (5,000)(6)

Knickknack, Inc., prices its products at 120 percent of cost, which yields target prices of $796.80 for odds and $1,195.20 for ends. Recently, however, Knickknack has been challenged in the market for ends by a European competitor, Bricabrac Corporation. A new entrant in this market, Bricabrac has been selling ends for $880 each. Knickknack

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