Pluton Makes Particular Plastics for Sale to the Public and the Government

question 7

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: $$\begin{array} { | l | r | r | } \hline & \text { Qty } & \text { Cost } \\\hline \text { Chemical Xeta, gals } & 15 & \$ 25.00 \\\hline \text { Chemical Thenta, gals } & 35 & \$ 27.50 \\\hline \text { Base material, lbs } & 20 & \$ 1.00 \\\hline 100 \text {-Ib lined drum } & 1 & \$ 51.83 \\\hline\end{array}$$ Variable factory overheads are 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 overheads. The highly automated plant typically runs 21,000 machine hours per month. The preparation of one 100 lbs batch of Xentra needs ten minutes of direct labor and 75 minutes of machine time. Fixed manufacturing overheads total $3,500,000 per month. Forty percent of these fixed manufacturing overheads are labor-related costs and the balance are 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)The current method of determining cost
• B)Allocating overheads per machine hour
• C)Allocating overheads per direct labor hour
• D)Allocating overheads per pound
• E)None of the above

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Definitions:

Profit Margin

The profit margin is the percentage of revenue that remains as profit after all expenses are deducted from sales.

Financial Planning

The process of defining goals, policies, procedures, programs, and budgets to manage the financial activities of an individual or organization effectively.

Company Priorities

The strategic goals or areas of focus that a company identifies as most important for its success.

Financial Planning

The process of creating strategies to manage financial affairs and meet life goals, involving saving, investment, and budgeting.