Question

Smythe Co. makes furniture. The following data are taken from its production plans for the year.

Direct labor costs $5,680,000
Hazardous waste disposal costs 620,000

Chairs Tables
Expected production 207,000 units 21,000 units
Direct labor hours required 272,000 DLH 15,800 DLH
Hazardous waste disposed 400 pounds 400 pounds

Required:

Which method is better for assigning costs to each product?
i. Assignment based on the number of pounds
ii. Assignment based on direct labor hours

Answer 1

Answer:

ii

Explanation:

Number of pounds remain same whether the expected production id 207,000 or 21,000 units. Direct labor hours vary with expected units of production. So, assignement based on direct labor hours is better for assigning costs to eact product