2-17 Direct and indirect costs, effect of changing the classification of a cost item (continuation of 2-16). MOP hires Judy Shore, a cost consultant, who discovers that each production line has multiple energy meters, so it is economically feasible to trace $90 million of energy costs directly to the three product lines. The remaining $60 million of manufacturing overhead costs of the plant (including the $20 million of fixed costs) are allocated to each product on the basis of the direct manufacturing labor costs of each line. She reports the following revised numbers for July 2007 : If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/ cost12e and download the template for Exercise 2-17. 1. Why might MOP's managers prefer energy costs to be a direct cost rather than a manufacturing overhead cost? 2. Compute the manufacturing cost per unit for each product line after the cost analysis has been performed by Judy Shore. 3. Comment on the cost per unit for each product line before and after Shore's analysis. 2-17 Direct and indirect costs, effect of changing the classification of a cost item (continuation of 2-16). MOP hires Judy Shore, a cost consultant, who discovers that each production line has multiple energy meters, so it is economically feasible to trace $90 million of energy costs directly to the three product lines. The remaining $60 million of manufacturing overhead costs of the plant (including the $20 million of fixed costs) are allocated to each product on the basis of the direct manufacturing labor costs of each line. She reports the following revised numbers for July 2007 : If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/ cost12e and download the template for Exercise 2-17. 1. Why might MOP's managers prefer energy costs to be a direct cost rather than a manufacturing overhead cost? 2. Compute the manufacturing cost per unit for each product line after the cost analysis has been performed by Judy Shore. 3. Comment on the cost per unit for each product line before and after Shore's analysis