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Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows: M-008 M-12 Direct materials Direct labor S 100,000 S 80,000 $ 180,000 100,000 40,000 40,000 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows: Activity Level M-008 M-123 Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Total $120,000 5,000 3,000 8,000 20 60 Costs 70,000 90,000 20 40 $ 280,000
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