COST ALLOCATION PROBLEM
Bull

Total

500

1,500

2,000

$2,500
$1,400
10

$3,300
$1,600
30

$5,800
$3,000
40
$42,000
$12,000

$10,500
$14,400

$31,500
$36,400

$28.80

$24.27

Bull

Number of woodcuts produced Direct materials costs
Direct labor costs
Number of batches
Total overhead
Batch setup costs
(included in total overhead) Allocated Overhead
Total Product Cost –
Direct and Overheads
Cost
per unit produced

Dogs

Dogs

New Total

500

1,500

2,000

$2,500
$1,400
5

$3,300
$1,600
30

$5,800
$3,000
35
$40,500
$10,500

$10,125
$ 14,025

$30,375
$35,275

$28.05

$23.52

$50,800

NEW LOWER OVERHEAD COST

Number of woodcuts produced Direct materials costs
Direct labor costs
Number of batches
Total overhead
Batch setup costs
(included in total overhead) Allocated Overhead
Total Product Cost –
Direct and Overheads
Cost
per unit produced

$49,300

Bull and matador line will see cost saving of 10,500/35= $300*5= $1500 but Dogs playing Poker line will not see any cost saving.
B) Yes, I do recommend a different method of costing. Currently the Millwood mill is using traditional method of costing. So for both lines of product the mill has allocated the same overhead rate $21 for each product line. But we can see the direct material cost per unit and the direct labor cost per unit is higher for the bull line. We need to see which product line takes more machine hour per product, special supervision and more machines setting cost. So I will recommend to use activity- based costing which allocates the costs to distinct type of activity and thus we can get a more accurate and realistic cost of the products.

DECISION PROBLEM

I think it will not be a good idea to shut down the entire division. If they shut down the entire division, they may avoid the