Problem

Costume Kings has two product lines: machine-made costumes and hand-made costumes. The com...

Costume Kings has two product lines: machine-made costumes and hand-made costumes. The com­pany assigns $80,000 in manufacturing overhead costs to two cost pools: power costs and inspection costs. Of this amount, the power cost pool has been assigned $32,000 and the inspection cost pool has been assigned $48,000. Additional information about each product line is shown below.

 

Machine-Made

Hand-Made

Sales revenue  

  $240,000

$160,000

Direct labor and materials costs  

$120,000

$ 96,000

Units produced and sold   

  48,000

16,000

Machine hours

  96,000

4,000

Square feet of production space  

  1,200

800

Material orders received  

  150

100

Quality control inspection hours

  2,000

500

a. Allocate the manufacturing overhead from the activity cost pools to each product line. Use what you believe are the most significant cost drivers from the information provided.


b. Compute the cost per unit of machine-made costumes and hand-made costumes.


c. On a per-unit basis, which product line appears to be the most profitable? Explain.

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