EXERCISE 12-7B SOLUTION

a. Step 1 is to determine the allocation rate:

Step 2 is to assign the cost:

Product	Allocation Rate	x	Weight of Base	=	Allocated Cost
Cups
Tablecloths
Bottles
Total					$250,000

EXERCISE 12-7B (Sol. cont.)

b. Cain chose machine hours as the cost driver. Explain why:

EXERCISE 12-12B SOLUTION

The allocation rate is computed as follows:

_______		Base	Computation	Allocation Rate

	Allocation Rate	x	Weight of Base	=	January		February
Number of units (a)					4,000		3,200
Rental cost
Rental cost
Direct materials
Direct labor
Total (b)
Cost per unit
Price					$30.10

Exercise 12-7B Allocating overhead costs among products Cain Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal year include the following. Cain uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows: Required a. Allocate the budgeted overhead costs to the products. b. Provide a possible explanation as to why Cain chose machine hours, instead of labor hours, as the allocation base