Question: Briones Books is concerned about the profitability
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 relatedto quality control inspectors’ salaries. The following information about the productsis also available:
a. Determine the total overhead cost assigned to each type of dictionary using the current 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.
Transcribed Image Text:
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
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