C $2021$ by Flat World Knowledge, Inc.

C $2021$ by Flat World Knowledge, Inc.

Although management of SailRite prefers the accuracy of activity$-$based costing, the cost of

maintaining such an accounting system for the long term is prohibitive. John, the accountant,

has proposed going back to using one plantwide rate, but he would like to allocate overhead

costs using machine hours rather than direct labor hours.

Recall that overhead costs totaled $$8,000,000.$ A total of $90,000$ machine hours were used for

the period: $50,000$ for Basic sailboats and $40,000$ for Deluxe sailboats. The company produced

$5,000$ units of the Basic model and $1,000$ units of the Deluxe model. Thus, the Basic model uses

$10$ machine hours per unit $(=50,000$ machine hours $5,000$ units$)$ and the Deluxe model uses

$40$ machine hours per unit $(=40,000$ machine hours $1,000$ units$).$

Required:

a$.$ Calculate the predetermined overhead rate using machine hours as the allocation base, and

determine the overhead cost per unit allocated to the Basic and Deluxe sailboats. Round

results to the nearest cent.

b$.$ For each product, calculate the unit product cost and profit using the same format presented

previously. Round results to the nearest cent.

c$.$ Compare your results in requirement $b$ to the results using direct labor hours as the allocation

base and activity$-$based costing presented in the tables above.

d$.$ Provide at least two reasons why management might prefer machine hours as the overhead

allocation base rather than direct labor hours or activity$-$based costing.