LO.4 (ABC) Briones Books is concerned about the protability of its regular dictionaries. Company managers are considering producing only the top-quality, hand-sewn dictionaries with gold-edged pages. Briones is currently assigning the $2,000,000 of overhead costs to both types of dictionaries based on machine hours. Of the overhead, $800,000 is utilities related and the remainder is primarily related to quality control inspectors' salaries. The following information about the products is also available:
|
Regular |
Hand Sewn |
| Number produced |
2,000,000 |
1,400,000 |
| Machine hours |
170,000 |
30,000 |
| Inspection hours |
10,000 |
50,000 |
| Revenues |
$6,400,000 |
$5,600,000 |
| Direct costs |
$5,000,000 |
$4,400,000 |
Determine the total overhead cost assigned to each type of dictionary using the cur- rent allocation system. Determine the total overhead cost assigned to each type of dictionary if more appro- priate cost drivers were used. Should the company stop producing the regular dictionaries? Explain.