Allocating facility-level cost and a product elimination decisionHolby Boards produces two


Allocating facility-level cost and a product elimination decision

Holby Boards produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow.

Basco Boards

Shimano Boards

Production costs

Direct materials



Direct labor



Allocated overhead



Total units produced and sold



Total sales revenue



Holby allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $108,000 per quarter, to the two products equally.


a. Compute the net profit for each product.

b. Assuming that the overhead allocation for Basco boards includes $24,000 of facility-level cost, would you advise Holby to eliminate these boards? (Hint. Consider the method used to allocate the delivery and selling expense.)

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