Pluton Makes Particular Plastics for Sale to the Public

question 9

Multiple Choice

Pluton makes particular plastics for sale to the public and the government.Basic cost data for a 100-pound drum of one particular product called Xentra appears below: $\begin{array}{c}\begin{array}{lll}\\ \text {Chemical Xeta, gals}\\ \text {Chemical Thenta, gals }\\ \text {Base material, pound }\\ \text {100-1b lined drum} \end{array}\begin{array}{lll} \text {Qty}\\15\\35\\20\\1 \end{array}\begin{array}{rr} & \text { Cost } \\\$ & 25.00 \\\$ & 27.50 \\\$ & 1.00 \\\$&51.83\end{array}\end{array}$

Variable factory overhead is estimated to be $1,200,000 per month,when 1,000,000 pounds of various products are produced.The plant employs 20 chemical workers who typically work 175 hours each per month and are paid $24 per hour.Other workers are classified as indirect and are included in fixed overhead.The highly automated plant typically runs 21,000 machine hours per month.The preparation of one 100-pound batch of Xentra needs ten minutes of direct labor and 75 minutes of machine time.Fixed manufacturing overhead totals $3,500,000 per month.Forty percent of the fixed manufacturing overhead is labor-related costs and the balance is machine-related costs.
A government agency wants to purchase 200 drums of Xentra at cost plus a flat fee.Which allocation method gives the profit-maximizing result?

• A)Allocating overhead per 100-pound drum
• B)Allocating overhead per machine hour
• C)Allocating overhead per direct labor hour
• D)Allocating overhead per pound
• E)None of the choices are correct

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