What are the fixed overhead costs allocated to the products

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Reference no: EM133079346

Question - Saratoga manufactures three types of hiking boots - Basic, Pathfinder and Extreme. The budgeted revenues and costs of the three products are as follows:

Product

Basic

Pathfinder

Extreme

Sales

$5,000,000

$4,000,000

$6,000,000

Variable Costs

 

 

 

Direct Material

1,500,000

1,500,000

2,500,000

Direct Labor

500,000

1,000,000

1,000,000

Variable Overhead (VOH) is allocated at 50% of Direct Labor costs.

Total fixed expenses (unavoidable) by function for the entire company:

Salaries of executive staff $1,200,000

Selling Expenses $1,000,000

Administrative Expenses $1,800,000

The fixed expenses are allocated to the three products using budgeted revenues.

a. What are the Variable Overhead costs allocated to the three products?

b. Does the Variable Overhead Rate change with changes in volume? Explain.

c. What are the Fixed Overhead costs allocated to the three products?

d. Is the cost driver Budgeted Revenue dollars for fixed expenses an insulating or non-insulating cost driver? Explain the reason for your answer.

e. Calculate the Gross Margin for the Pathfinder division. Should JC drop the Pathfinder product? Explain your answer with supporting calculations.

f. Saratoga is considering eliminating Pathfinder and adding Ultra. Ultra will have the same variable costs as the Pathfinder (both materials, direct labor and variable overhead). Ultra though need an additional $2,000,000 of incremental fixed costs. What must be the minimum incremental dollars that Ultra should bring in so that Saratoga is indifferent between producing Pathfinder and Ultra products? Note: This is not a break-even question but an incremental question.

Reference no: EM133079346

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