Executive Images Corporation produces two types of wooden bookends: plain and hand-carved. The following information about the production process is available:
Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder is related to quality control.
a. Determine the total overhead cost assigned to each type of bookend using machine hours as the allocation base. Calculate the gross profit per unit for each product.
b. Determine the total overhead cost assigned to each type of bookend if overhead is assigned using allocation bases appropriate to the overhead costs. Calculate the gross profit per unit of each product.
c. Explain why the unit cost for each model is different between the two methods of allocation.

Question

Executive Images Corporation produces two types of wooden bookends: plain and hand-carved. The following information about the production process is available:
  Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder is related to quality control.
a. Determine the total overhead cost assigned to each type of bookend using machine hours as the allocation base. Calculate the gross profit per unit for each product.
b. Determine the total overhead cost assigned to each type of bookend if overhead is assigned using allocation bases appropriate to the overhead costs. Calculate the gross profit per unit of each product.
c. Explain why the unit cost for each model is different between the two methods of allocation.

Quizplus · Accepted Answer

The Answer of Executive Images Corporation produces two types of wooden bookends: plain and hand-carved. The following information about the production process is available:
  Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder is related to quality control.
a. Determine the total overhead cost assigned to each type of bookend using machine hours as the allocation base. Calculate the gross profit per unit for each product.
b. Determine the total overhead cost assigned to each type of bookend if overhead is assigned using allocation bases appropriate to the overhead costs. Calculate the gross profit per unit of each product.
c. Explain why the unit cost for each model is different between the two methods of allocation.

Executive Images Corporation Produces Two Types of Wooden Bookends: Plain