Question:
Allocating overhead costs among products
Walker Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal year include the following.
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Factory manager's salary
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$130,000
|
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Factory utility cost
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60,500
|
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Factory supplies
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28,000
|
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Total overhead costs
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$218,500
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Walker uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows.
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Cups Tablecloths
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420 hours 740
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Bottles
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1,140
|
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Total machine hours
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2,300
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Required
a. Allocate the budgeted overhead costs to the products.
b. Provide a possible explanation as to why Walker chose machine hours, instead of labor hours, as the allocation base.