Question
Allocating activity cost pools to products Lavendar Corporation uses ABC and makes plastic and wooden picture frames. The company has assigned $107,000 in monthly manufacturing
Allocating activity cost pools to products
Lavendar Corporation uses ABC and makes plastic and wooden picture frames. The company has assigned $107,000 in monthly manufacturing overhead costs to two cost pools based on the number of emplyees: 10 employees for each power activities and 15 employees for production set up activities. The additional monthly data are provided below:
Plastic Frames Wooden Frames
Sales Revenue................ $254,000 $179,000
Direct materials............... $101,000 $38,360
Direct labor..................... $53,360 $92,720
Machine hours............... 107,420 7,580
Production runs............. 65 35
Units produced and sold 59,000 29,000
Power costs are allocated to products using machine hours as an activity base. Set up costs are allocated to products based on the number of production runs each product line requires.
Required:
- Calculate the total manufacturing cost per Plastic Frame.
- Calculate the total manufacturing cost per Wooden Frame.
- Which product is more profitable per unit?
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