This study source was downloaded by 100000806719784 from CourseHero com on 03 23 2022 23 28 49 GMT 05 00 https www coursehero com file 93355631 06 Assignment 1pdf Joanne Marie R Bagsic BSA 311 I PROBLEM SOLVING 3 items x 10 points Perform what is being asked Write your answers on a separate sheet of paper Potter Inc manufactures figurines All figurines are approximately the same size but some are plain ceramic whereas others are fancy with paints and smooth finish Management is considering producing only the fancy figurines because they appear to be substantially more profitable than the ceramic figurines The company s total production overhead is P5 017 500 Some additional data are as follows CERAMIC FANCY Revenues P15 000 000 P16 800 000 Direct Costs P8 250 000 P8 750 000 Production units 1 500 000 350 000 Machine Hours 200 000 50 000 Direct Labor Hours 34 500 153 625 Number of Inspections 1 000 6 500 REQUIRED a Potter Inc has consistently used machine hours to allocate overhead Determine the profitability of each line of figurines and decide whether the company should stop producing the ceramic figurines Total Production Overhead P 5 017 500 Divided by Machine Hours Ceramic 200 000 Fancy 50 000 250 000 Overhead Rate P 20 07 Ceramic Fancy Machine hours P 200 000 P 50 000 Multiplies by Overhead Rate 20 07 20 07 Overhead Rate P 4 104 500 P 1 003 500 Ceramic Fancy Revenue P 15 000 000 P 16 800 000 Less Direct Costs P 8 250 000 P 8 750 000 Overhead Costs 4 014 500 12 264 000 1 003 500 9 753 500 Profit P 2 736 000 P 7 046 500 The production of Ceramics should not be stopped Though the profit of Ceramic is lower as compared to Fancy but still Ceramics contributed in the income of Potter Inc if the production of ceramics will be stop the total overhead will be shoulder by Fancy thus giving a lower income as compare to having both This study source was downloaded by 100000806719784 from CourseHero com on 03 23 2022 23 28 49 GMT 05 00 https www coursehero com file 93355631 06 Assignment 1pdf Powered by TCPDF www tcpdf org b The cost accountant has determined that production overhead costs can be assigned to separate cost pools Pool 1 contains P1 260 000 of overhead costs for which the most appropriate cost driver is machine hours Pool 2 contains P2 257 500 of overhead costs for which the most appropriate cost driver is direct labor hours and Pool 3 contains P1 500 000 of overhead costs for which the most appropriate cost driver is the number of inspections Compute the overhead cost that should be allocated to each type of figurine using different types of cost drivers Ceramic Fancy Total Machine Hours 200 000 50 000 250 000 Direct Labor Hours 34 500 153 625 188 125 Number of Inspections 1 000 6 500 7 500 Overhead Costs Pool 1 1 260 000 1 008 000 252 000 1 260 000 Pool 2 2 257 500 414 000 1 843 500 2 257 500 Pool 3 1 500 000 200 000 1 300 000 1 500 000 TOTAL 1 622 000 3 395 500 5 017 500 c Discuss whether the company should continue to manufacture both types of figurines The company should continue to the production of both types of figurines because each type has different market If the production of Ceramics will discontinue there is no assurance that the revenue generated by Ceramics will be generated as additional revenue to Fancy figurines I think what the company can do is to distribute the overhead properly and just adjust the production so that they can minimize the costs of production hence maximize the profitability of the Company