About Financial and Managerial Accounting exercise $17\mathrm{.}14$ solution

LO$6$ EXERCISE $17\mathrm{.}14$

Allocating Activity

L$07$

L$07$

Costume Kings has two product lines: machine$-$made costumes and hand$-$made costumes. The company assigns $$80,000$ in manufacturing overhead costs to two cost pools: power costs and inspection costs. Of this amount, the power cost pool has been assigned $$32,000$ and the inspection cost pool has been assigned $$48,000.$ Additional information about each product line is shown below.

$\backslash$table$[[,$Machine$-$Made,Hand$-$Made$],[$Sales revenue,$$240,000,$$$160,000],[$Direct labor and materials costs $.....................,$$$120,000,$$$96,000],[$Units produced and sold,$48,000,16,000],[$Machine hours $.....................................,96,000,4,000],[$Square feet of production space $..,1,200,800],[$Material orders received $............................,150,100],[$Quality control inspection hours $........................,2,000,500]]$

a$.$ Allocate the manufacturing overhead from the activity cost pools to each product line. Use what you believe are the most significant cost drivers from the information provided.

b$.$ Compute the cost per unit of machine$-$made costumes and hand$-$made costumes.

c$.$ On a per$-$unit basis, which product line appears to be the most profitable? Explain.