Catlow Corporation is trying to estimate the costs associated with increased volume of operations. The firm currently
Currently, the firm makes two products, Alpha and Beta. Alpha, with a volume of 2,900 units, takes two machine hours per unit. Beta, with a volume of 1,400 units, consumes three machine hours per unit. Each machine hour costs has a variable overhead rate of $20 per machine hour (for power, oils, lubricants and other consumable items), and $30 as an allocation for fixed costs (e.g., machine depreciation).
Catlow is considering expanding the volume of its operations to produce 3,400 units of Alpha and 2,000 units of Beta.
a. Using the cost per machine hour to estimate capacity costs, calculate the total cost of machining time for the two products.
b. How could you refine the estimate in part (a) above? What conclusions do you draw about the relative costs and benefits of direct estimation of capacity costs versus using allocated costs to estimate them?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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