(Answered) Question - the president of tiger furnishings is confused

Accounting

Question - The president of Tiger Furnishings is confused about the differences in costs that result from using direct labor costs and machine-hours. Tiger furnishings produces two models of cabinets for home theater componets, the Basic and the Dominator. Data on the operations and costs for March follow:

Basic Dominator Total

Units produced 1,000 250 1,250

Machine-hours 4,000 2,000 6,000

Direct-labor hours 3,000 2,000 5,000

Direct materials costs $10,000 $3,750 $13,750

Direct labor costs 64,500 35,500 100,000

Manufacturing overhead costs 174,100

Total costs $287,850

a. Explain why the two product cost are different.

b. How would you respond to the president when asked to recommend one allocation base or the other?

c. The president says to choose the allocation base that results in the highest income. Is this an appropriate basis for choosing an allocation base?

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