Ontario, Inc. manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period is $800,000 and 25,000 hours, respectively. Information about the company’s products follows.
| Standard: | Enhanced: | |
|
Estimated production volume |
3,000 units | 4,000 units |
|
Direct-material cost |
$25 per unit | $40 per unit |
|
Direct labor per unit |
3 hours at $12 per hour | 4 hours at $12 per hour |
Ontario’s overhead of $800,000 can be identified with three major activities: order processing ($150,000), machine processing ($560,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively.
Data relevant to these activities follow:
| Orders Processed | Machine Hours Worked | Inspection Hours | |
|
Standard |
300 | 18,000 | 2,000 |
|
Enhanced |
200 | 22,000 | 8,000 |
|
Total |
500 | 40,000 | 10,000 |
Top management is very concerned about declining profitability despite a healthy increase in sales volume. The decrease in income is especially puzzling because the company recently undertook a massive plant renovation during which new, highly automated machinery was installed—machinery that was expected to produce significant operating efficiencies.
Present your work in Microsoft Excel spreadsheet format. Apply APA standards to citation of sources
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