Cost allocation, use of a separate machining cost pool category.

(10 minutes) Azu-Cena, Lda, is a manufacturer of motorcycles. Production and cost data for 2001 are as follows: jut4

REQUIRED 1. Calculate the overhead costs allocated per unit to each brand of motorcycle in 2001 using the current single-cost-pool approach of Azu-Cena.
2. Calculate the machining costs and general plant overhead costs allocated per unit to each brand of motorcycle assuming that the accountant’s proposal for two separate cost pools is used in 2001.
3. What benefits might arise from the accountant’s proposal for separate pools for machining costs and general plant costs?

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500 CC BRAND 1,000 cc BRAND 20,000 Units produced 10,000 Direct manufacturing labour-hours per unit 2 Machine-hours per unit 8 A single cost pool is used for manufacturing overhead. For 2001, manufac turing overhead was EUR 6.4 million. Azu-Cena allocates manufacturing overhead costs to products on the basis of direct manufacturing labour- hours per unit. Azu-Cena's accountant now proposes that two separate pools be used for manufacturing overhead costs: Machining cost pool (EUR 3.6 million in 2001) General plant overhead cost pool (EUR 2.8 million in 2001) Machining costs are to be allocated using machine-hours per unit. General plant overhead costs are to be allocated using direct manufac- turing labour-hours per unit.