Nevin 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.
- factory managers salary $260,000
- factory utility cost 121,000
- factory supplies 56,000
- total overhead costs $437,000
Nevin uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows.
- cups 420 hours
- tablecloths 740
- bottles 1,140
- total machine hours 2,300
Required
A. Allocate the budgeted overhead costs to the products.
B. Provide a possible explanation as to why Nevin chose machine hours, instead of labor hours, as the allocation base.