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Allocation of overhead

Igh grade. The standard CDs are used primarily in computer drives and are designed for data storage rather than accurate sound reproduction. The company only recently began producing the higher quality, high grade model to enter the lucrative music recording market. Since the new product was introduced, profits have seen only a modest increase. Management expected a significant profit increase related to rapidly growing sales of the high grade discs. Management believes the accounting system may not be accurately allocating costs to products.
Investigating the cost allocation problem manufacturing overhead is currently assigned to products based on the direct labor costs in the products. Last year's manufacturing overhead was $880,000, based on the production of 320,000 standard CDs and 120,000 high grade CDs. Selling prices last year averaged $3.60 per standard disc and $5.80 per high disc. Direct labor and direct material costs for last year are Please see the attachment.

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High grade. The standard CDs are used primarily in computer drives and are designed for data storage rather than accurate sound reproduction. The company only recently began producing the higher quality, high grade model to enter the lucrative music recording market. Since the new product was introduced, profits have seen only a modest increase. Management expected a significant profit increase related to rapidly growing sales of the high grade discs. Management believes the accounting system may not be accurately allocating costs to products.
Investigating the cost allocation problem manufacturing overhead is currently ...

Solution Summary

Response provides steps to compute the steps to allocate overhead

$2.19