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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

Expert Solution

Answer is given below with working

ekkarill92 answered 1 year ago
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