Healthy Hound inc. Makes two lines of dog food (1) basic chunks and (2) custom cuts. The basic chunks line is a dry food that is process almost entirely bye an automated process custom cards is a canned food made with real horse meat the slab of meat market in trimmed by hand before being scheduled into an automated canning machine basic chunks sounds very well nspro significantly below come tel aviv brands self and custom cards have been on the decline as the company has failed to keep the prayer and praise competitive other information concerning each product line is provided below.
Basic chunks custom cuts
Number of units produced and sold per month. 50,000 20,000
Direct material $2. $4
Cost per unit
Direct labor. $12. allocated manufacturing overhead to each product line on the basis of direct labourthe company currently allocated manufacturing overhead to each product line on the basis of direct labor hours budgeting manufacturing overhead per month is $24600 whereas budgeting direct labor hours amounts to 2500 per month healthy hounds recently hired a consultant to examine it cost accounting system she recommended that the company adapt activity based costing to allocate manufacturing overhead she propose that the following cost pool and cost drivers be used
Cost poUtilities ount Cost. Total
Allocated Driver. Driver vol
Utallocationallocation0. KWh. 1,000kWh
Maintenance. 1,000. mh. 200mh
Dep.of plant. 15,000.Sq.ft. 80,000sq.ft.
Equipment
Miscellaneous 600. DLH. 2,500DLH
Total allocationallocation $24,600
Cost driver Basic chunks. Custom cuts
kwh. 90,000. 10,000
Machine hrs. 160mh. 40mh
Sq. ft. Occupied. 60,000. 20,000
Direct labor hrs. 500DLH 2,000DLH
instructions
A.allocate manufacturing overhead costs to each product line using direct labor hours as a single cost driver
B. Allocate manufacturing overhead cost to each product line using the activity based costing approach recommended by the consultant
C. compute the total monthly manufacturing assigned to each product line when activity based costing is used to allocate manufacturing overhead
D. Assume that the company that sets selling prices as a fixed percentage above the total manufacturing costs allocated to each product line. on the basis of your result from parts a, and b discuss a possible reason why sales of custom cuts product line are currently experiencing a decline
E. discuss reasons why the company adopt the recommendation of the consultant and implement an activity based costing system