Willey 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 manager's salary ........................ $210,000
Factory utility cost ................................... 70,000
Factory supplies ...................................... 20,000
Total overhead costs .............................. $300,000
Willey uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows:
Cups ............................... 300 Hours
Tablecloths .................................750
Bottles ......................................950
Total machine hours ...................2,000
Required
a. Allocate the budgeted overhead costs to the products.
b. Provide a possible explanation as to why Willey chose machine hours, instead of labor hours, as the allocation base.