IcyPop Inc. is an ice cream manufacturing company. It produces two major types of ice-cream products: FruityGo and BerryWafers. You have been brought on as an Analyst, with your first task being to ascertain the most appropriate method of assigning overhead costs to its FruityGo and BerryWafers products. The following information relates to these products for the year just ended for its two main production departments. 

                                            Mixing                                 Packaging
Budgeted Overhead         $400,000                                 $80,000
                                       Budgeted Direct                    Labour Hours:
FruityGo                              1,000                                         5,000
BerryWafers                        4,000                                       15,000
Budgeted Machine Hours:
FruityGo                               3,500                                       3,000
Berrywafers                         1,500                                        2,000

30,000 units of FruityGo and 50,000 units of BerryWafers were actually produced in this budget year.

(a) Calculate the pre-determined plantwide overhead rate based on direct labour hours, and the per unit overhead cost for FruityGo and BerryWafers products using the predetermined plantwide overhead rate you just calculated.
(b) Calculate the pre-determined departmental overhead rates based on machine hours for Mixing and labour hours for Packaging, and recalculate the per unit overhead cost for FruityGo and BerryWafers based on these new pre-determined rates.
(c) Which would be the better overhead allocation (plantwide or departmental) for IcyPop? Justify your answer by considering comparative merits of the two approaches, and evidence from the calculations you completed in parts (a) and (b). 

Answer rating: 100% (QA)

c Departmental overhead rate allocation would be better for Icy Pop Inc as compared to the plantwide ... View the full answer