Question:
(ABC) Briones Books is concerned about the profitability 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
|
a. Determine the total overhead cost assigned to each type of dictionary using the cur-rent allocation system.
b. Determine the total overhead cost assigned to each type of dictionary if more appropriate cost drivers were used.
c. Should the company stop producing the regular dictionaries? Explain.