ALLOCATING INDIRECT COST BETWEEN PRODUCTS
Fletcher Corporation has hired a marketing representative to sell the company's two products; marvelous and wonderful. The representative's total salary and fringe benefits are $8,000 monthly. The product cost is $150 per unit for marvelous and $240 per unit for wonderful. Fletcher expects the representative to spend 48 hrs per month marketing marvelous and 112 hours promoting wonderful.
- Determine the estimated total cost and cost per unit, assuming that the representative is able to sell 100 units of marvelous and 70 units of wonderful in a month. Allocate indirect cost on the basis of labor hours.
- Determine the estimated total cost and cost per unit, assuming that the representative is able to sell 250 units of marvelous and 140 units of wonderful in a month. Allocate indirect cost on the basis of labor hours.
- Explain why the cost per unit figures calculated in requirement a differ from the amount calculated in requirement b. Also explain how the differences is estimated cost per unit will affect pricing decision.