It should be formatted as a memo

Manufacturing overhead allocation

The Company has adopted a normal costing approach

Manufacturing overhead costs allocated based on direct labour hours.

a.What if the normal costing approach adopted by the company i. (Exhibit 3)

Exhibit 2 Actual operating income statement For the year ended December 31, 20X7 The-Bar Per Alamonde Per Salt-Lick Per Total bar bar bar Volume 776,000 528,000 302,500 1,606,500 Sales $1,164,000 $1.50 $ 897,600 $1.70 $ 605,000 $2.00 $2,666,600 Cost of goods 945,595 724.672 448,187 2.118.454 sold Gross margin $ 218,405 $ 172,928 $ 156,813 $ 548,146 Selling and 541.681 administrative expenses Operating 6.465 income Gross margin % 18.8% 19.3% 25.9% 20.6% Budgeted operating income statement For the year ended December 31, 20X7 The-Bar Per Alamonde Per Salt-Lick Per Total bar bar bar Volumes 774,400 529, 100 301,400 1,604,900 Sales $1, 161,600 $1.50 $ 952,380 $1.80 $ 602,800 $2.00 $2,716,780 Cost of goods 996,034 690.756 390,297 2,077.087 sold Gross margin $ 165,566 $ 261,624 $ 212,503 $ 639,693 Selling and 542.554 administrative expenses Operating $ 97.139 income Gross margin % 14.3% 27.5% 35.2% 23.5%In order to properly analyze the financial statements, the following information is also provided: Exhibit 3 Actual cost of product manufactured For the year ended December 31, 20X7 The-Bar Alamonde Salt-Lick Total Direct ingredients used $ 333,507 $ 232,724 $ 129,948 $ 696,179 Direct labour 135,876 123,926 70,338 330,140 Manufacturing overhead 476,954 367.795 247,901 1,092,650 Total manufacturing costs $ 946,337 $ 724,445 $ 448, 187 $ 2,118,969 Add: beginning work-in-process 1,196 837 2,033 Deduct: ending work-in-process (1,207) (815) (2,022) Cost of goods manufactured $ 946.326 $ 724.467 $ 448,187 $ 2.118,980 Budgeted cost of product manufactured For the year ended December 31, 20X7 The-Bar Alamonde Salt-Lick Total Direct ingredients used $ 330,271 $ 231,514 $ 128,694 $ 690,479 Direct labour 147,744 101,736 57,996 307,476 Manufacturing overhead 518.685 357,165 203,607 1,079,457 Total manufacturing costs $ 996,700 $ 690,415 $ 390,297 $ 2,077,412 Add: beginning work-in-process 2,991 2,094 5,085 Deduct: ending work-in-process (2.885) (1,949) (4.834) Cost of good manufactured $ 996,806 $ 690,560 $ 390,297 $ 2,077.663