Question

Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a cruising bike (Route 66), a street bike (Main Street), and a starter model (Alley Cat). Because of the different materials used, production processes for each model differ significantly in terms of machine types and time requirements. Once parts are produced, however, assembly time per unit required for each type of bike is similar. For this reason, PMI allocates overhead on the basis of machine-hours. Last year, the company shipped 1,100 Route 66s, 1,900 Main Streets, and 4,500 Alley Cats and had the following revenues and expenses. PICKLE MOTORCYCLES, INC. Income Statement Route 66 Main Street $7,400,000 $11,900,000 Alley Cat $9,500,000 Total $28,800,000 ces 2,600,000 286,000 5,200,000 475,000 3,700,000 1,120,000 11,500,000 1,881,000 Sales revenue Direct costs Direct materials Direct labor Variable overhead Machine setup Order processing Warehousing costs Energy to run machines Shipping Contribution margin Fixed overhead Plant administration Other fixed overhead Gross profit 500,000 1,050,000 1,828,750 782,000 700,000 $10,558, 250 1,860,000 2,850,000 $ 5,848,250 PMI's chlef financial Officer (CFO) hired a consultant to recommend cost allocation bases. The consultant recommended the following. Activity Setting up machines Processing orders Warehousing Using energy Shipping Cost Driver Number of production runs Number of sales orders received Number of units held in inventory Machine-hours Number of units shipped Activity Level Route 66 Main Street Alley Cat 25 30 45 300 600 600 240 180 350 10,000 16,000 20,000 900 4,100 9,000

Answer 1

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