Allocating Activity Cost Pools to Products

question 58

Essay

Allocating activity cost pools to products
Burgandy Corporation makes plastic and wooden picture frames.The company has assigned $107,000 in monthly manufacturing overhead costs to two cost pools as follows: $67,000 to power costs,and $40,000 to production set-up costs.Additional monthly data are provided below: Power costs are allocated to products using machine hours as an activity base.Set-up costs are allocated to products based on the number of production runs each product line requires.
(a)Allocate manufacturing overhead from the activity cost pools to each product line.
(b)Compare the total per-unit cost of manufacturing plastic frames and wooden frames.
(c)On a per-unit basis,which product line appears to be most profitable?

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Definitions:

Generalization

The process of applying information or conclusions from specific instances to broader contexts or situations.

Discrimination

In psychology, the ability to perceive and respond differently to various stimuli.

Classical Conditioning

A process of learning in which, with the consistent coupling of two stimuli, a response that originally required the second stimulus for elicitation is later elicited by the first stimulus solely.

Neutral Stimulus

A stimulus that initially produces no specific response other than focusing attention, until paired with an unconditioned stimulus in classical conditioning.