Question
A company produces two related products: Product A; Product B. The products share production resources. Currently the company allocates indirect manufacturing costs between the two
A company produces two related products: Product A; Product B. The products share production resources. Currently the company allocates indirect manufacturing costs between the two products using output units; consequently, on a per unit basis, both products have the same allocation of indirect manufacturing costs. A significant portion of the indirect manufacturing costs consists of batch-related costs such as setups. Product A is produced in large batches while Product B is produced in small batches. The current allocation method:
a.
over-costs Product B
b.
under-costs Product B
c.
none of the above
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