Allocating activity cost pools to products
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. Allocating activity cost pools to products
Burgandy Corporation makes plastic and wooden picture frames. The company has
assigned $107,000 in monthly manufacturing overhead costs to two cost pools as
follows: $67,000 to power costs, and $40,000 to production set-up costs. Additional
monthly data are provided below:
Sales revenue
Direct materials..
Direct labor....
Machine hours..
Production runs
Units produced and sold.
Plastic Wooden
Frames Frames
$254,000 $179,000
$101,000 $38,360
$53,360 $92,720
107,420
7,580
35
29,000
65
59,000
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.
(a) Allocate manufacturing overhead from the activity cost pools to each product line.
(b) Compare the total per-unit cost of manufacturing plastic frames and wooden frames.
(c) On a per-unit basis, which product line appears to be most profitable?
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