Apollo Corporation makes two skin-care related product lines, Daphne and Cassandra. Both products use a common process that has a capacity of 4,000 hours per year. The annual cost of this process is $900,000. For the current year, the Daphne and Cassandra lines used, respectively, 1,000 and 2,000 hours of the process.
Required:
a. Using hours as the allocation basis and actual use as the denominator volume, what is the processing cost allocated to each of the two product lines?
b. Repeat part (a) using practical capacity as the denominator volume when calculating overhead rates.
c. Which of the above two calculations is of more use to management as they evaluate product profitability and try to manage costs?