FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Mike. Inc has two products A and B. The budgeted fixed manufacturing
is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume
the firm can produce and sell 1,000 units Product A and 1,000 units Product B.
Product A Product B
Direct Materials $3 $2
Direct Labor $1 $3
Variable Manufacturing Overhead $2 $1
Budgeted labor hours used for each unit product 1 4
Budgeted machine hours used for each unit product 3 1
Sale Demand 1,000 1,000
Product A Product B
Required Investment $5,000 $30,000
Required
Unit Variable Selling Expenses $1 $2
Fixed Selling Expenses $2,000 $4,000
question:
1. If allocating fixed manufacturing overhead based on direct labor hour basis, calculate
(i) the sale price of products A and B
(ii) budgeted profit of products A and B.
2. If allocating fixed manufacturing overhead based on machine hour basis, calculate
(i) the sale price of products A and B
(ii) budgeted profit of products A and B.
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