Question
In: Accounting
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?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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