Addison Company Manufactures Two Products, Regular and Supreme - Overhead Applied to Supreme Using Traditional Costing Using Direct

question 8

Multiple Choice

Addison Company manufactures two products, Regular and Supreme.Addison's overhead costs consist of machining, $2,500,000; and assembling, $1,250,000.Information on the two products is: $$\begin{array} { l c c } & \text { Regular } & \text { Supreme } \\\text { Direct labor hours } & 10,000 & 15,000 \\\text { Machine hours } & 10,000 & 30,000 \\\text { Number of parts } & 90,000 & 160,000\end{array}$$
- Overhead applied to Supreme using traditional costing using direct labor hours is

• A)$1,075,000.
• B)$1,500,000.
• C)$2,250,000.
• D)$2,675,000.

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Definitions:

Gross Margin

The difference between revenue and cost of goods sold, which indicates how much the company earns from its core business activities before overhead costs.

Absorption Costing

A bookkeeping approach that incorporates all production costs, including both fixed and variable expenses, into the pricing of a product.

Variable Costing

An accounting method that accounts only for variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product cost calculations, excluding fixed manufacturing overhead.

Unit Product Cost

The complete expense incurred to manufacture a single item, encompassing materials, workforce, and indirect costs.