Linger Products Uses a Two-Stage Allocation Method to Assign Costs

question 61

Essay

Linger Products uses a two-stage allocation method to assign costs to its products. The following information has been provided for March:
$\begin{array}{lrrr}&\text {Product 1}&\text {Product 2}&\text {Total}\\\text { Units } & 3,000 & 2,000 & 5,000 \\\text { Machine hours } & 2,000 & 4,000 & 6,000 \\\text { Direct labor hours } & 2,000 & 2,000 & 4,000 \\\text { Direct materials } & \$ 60,000 & \$ 60,000 & \$ 120,000 \\\text { Direct labor } & 45,000 & 45,000 & 90,000\\\text { Manufacturing overhead}\\\text { Utilities (machine related)}&&&\$3,000\\\text { Supplies (labor related)}&&&8,000\\\text { Training (labor related)}&&&20,000\\\text { Supervision (labor related)}&&&17,000\\\text { Machine depreciation (machine related)}&&&24,000\\\text { Lease on factory (machine related)}&&&33,000\\\text { Miscellaneous (labor related)}&&&5,000\\\text { Total manufacturing overhead}&&&\$110,000 \end{array}$
Required:
(a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related.
(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases.
(c) Compute the total costs of production for each of the two products.

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Definitions:

Tax Savings

The reduction in income taxes that results from taking a permissible deduction from taxable income.

Cash Flow Streams

Multiple flows of cash, either inflowing or outflowing from different sources or activities, over a period.

Firm Value

The monetary value assigned to a business entity, influenced by its operational performance, future earnings, and market conditions; essentially a measure of its worth in the marketplace.