Allocating Activity Cost Pools to Products

question 23

Essay

Allocating activity cost pools to products
Laughton Corporation makes two styles of cases for compact disks,the standard case and the deluxe case.The company has assigned $210,000 in monthly manufacturing overhead to three cost pools as follows: $90,000 to machining costs,$60,000 to production set-up costs,and $60,000 to inspection costs.
Additional monthly data are provided below:
The first and last unit in each production run is inspected for quality control purposes.Inspection costs are allocated to the products based on the number of inspections required.Machining 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 standard cases and deluxe cases.
(c)On a per-unit basis,which product appears to be more profitable?

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Definitions:

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A dividend payment made in the form of additional shares rather than a cash payout, increasing the number of shares owned.

Par Common Stock

Common stock issued with a nominal value expressed in the corporate charter, which represents the stock's legal capital per share.

Market Price

The prevailing market price at which you can buy or sell an asset or service.

Cumulative Preferred Stock

A type of preferred stock that entitles shareholders to receive dividends in arrears before common stockholders can be paid dividends.