Halo Inc. manufactures several different products including product A and product B. Halo uses activity-based costing,...

Halo Inc. manufactures several different products including product A and product B. Halo uses activity-based costing, such that the total manufacturing overhead for the month, of $750,000, is assigned to the following cost pools with the corresponding activity levels:

	Cost Pool	Activity Cost Driver
Setup	$100,000	100 no. of setups
Maintenance	$250,000	1,250 machine hours
Packing & Shipping	$400,000	200 no. of deliveries

The following information for products A and B for the current month is available:

	A	B
No. of units produced	100	100
Sales prices per unit	$3,300	$3,400
Direct material cost	$200,000	$200,000
Direct labor cost (at $10 per hr)	$20,000	$30,000
No. of setups	8	4
Machine hours	350	250
Deliveries	20	25

a. If Halo were to use a single, predetermined overhead rate of $40 per labor hour, how much would each product cost?

b. Using activity-based costing, how much does each product cost?

c. If there is a difference between your answers to (a) and (b), why is this? And what costs are driving the difference?

d. Which answer (a) or (b) should Halo use in decision-making? And why is it better for decision-making?

e. So, based upon your answers to (d), which product is most profitable?

f. What might the managers do to increase the profits of Halo? What should they focus on first?

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Expert Solution

Answer is given below with working

ekkarill92 answered 1 year ago

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