Cain Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal year include the following.
Factory manager’s salary ......... $175,000
Factory utility cost .......... 64,000
Factory supplies ........... 11,000
Total overhead costs ......... $250,000
Cain uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows:
Cups ......... 200 Hours
Tablecloths ....... 600
Bottles ........ 800
Total machine hours .... 1,600
Required
a. Allocate the budgeted overhead costs to the products.
b. Provide a possible explanation as to why Cain chose machine hours, instead of labor hours, as the allocation base.