Allocating facility-level cost and a product elimination decisionHolby Boards produces two
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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
$54
$72
Direct labor
$78
$102
Allocated overhead
$30
$36
Total units produced and sold
4,000
8,000
Total sales revenue
$672,000
$1,776,000
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.
Required
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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