Walker Co. makes three products in its factory: plastic cups, plastic tablecloth
ID: 2443385 • Letter: W
Question
Walker Co. makes three products in its factory: plastic cups, plastic tableclothes, and plastic bottles. The expected overhead costs for the next fiscal year include the following.Factory manager's salary $130,000
Factory utility cost 60,500
Factory supplies 28,000
Total overhead costs $218,500
Walker uses machine hours as the cost driver to allocate overhead costs. Budgeted machine hours for the products are as follows:
Cups 420 hours
Tablecloths 740
Bottles 1,140
Total machine hours 2,300
Required
a. Allocate the budgeted overhead costs to products.
b. Provide a possible explanation as to why Walker chose machine hours, instead of labor hours, as the allocation base.
Explanation / Answer
a. Allocate the budgeted overhead costs to products.
Machine Allocated
Hrs. Cost
Cups 420 $218,500 x 420 / 2,300 $39,900
Tablecloths 740 $218,500 x 740 / 2,300 $70,300
Bottles 1,140 $218,500 x 1140 / 2,300 $108,300
Total machine
hours 2,300 $218,500
b. Provide a possible explanation as to why Walker chose machine hours, instead of labor hours, as the allocation base.
It appears that all the three products viz. Cup, Table clothes and Bottles use the same machine and the production of all the product is less labor intensive, as such Walker preferred to choose machine hours instead of labor hours as the allocation base.
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