Allocating facility-level cost and a product elimination decision
Holby Boards produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow.
Total units produced and sold
Total sales revenue
Holby allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $108,000 per quarter, to the two products equally.
a. Compute the net profit for each product.
b. Assuming that the overhead allocation for Basco boards includes $24,000 of facility-level cost, would you advise Holby to eliminate these boards? (Hint. Consider the method used to allocate the delivery and selling expense.)