Question

(Cost driver and pre-determined overhead) Memories, Inc. (MI) produces souvenir figurines that are sold wholesale to gift shops. They have created a new line of dolls representing historical figures. The company's goal is to produce and sell 350,000 dolls each year. MI plans to keep approximately a one-month supply of dolls in finished goods inventory MI will have 10 production lines. Each of the five workers on each line will be esponsible for one of the five stages of production: molding, cleaning, painting, finishing, and packaging. Each of the 10 production lines can produce 20 dolls per hour I deals exclusively with Quality Materials, Inc. to purchase raw materials and equipment. All materials (plastic, molds, paint, etc.) are delivered within two days of ordering and MI generally holds only a one- or two- day supply in raw materials nventory The projected materials costs are: Material cost per doll Plastic Doll molds Varnish Paint Packaging $.12 20 .08 .30 .04

Answer 1

From the information provided, we can conclude that direct labor is the most important cost driver. This can be concluded form the fact that they are responsible for the production lines, and also once the production target is achieved for the day they are sent home.

Hence the direct labor cost will be the appropriate cost driver for allocating the overhead to dolls.