Chapter 6 Exercise 6-12 Problems Associated with Too Few Cost Pools [LO 4] Mott

Chapter 6 Exercise 6-12
Problems Associated with Too Few Cost Pools [LO 4] Mott
Manufacturing allocates factory overhead using one cost pool with direct
labor hours as the allocation base. Mott has two production
departments P1 and P2. The new accountant at Mott estimates that next
year the total factory overhead costs will be $5000000 and
approximately 500000 direct labor hours will be worked.The accountant
also estimates that P1 will use 150000 direct labor hours and there
will be about $3000000 in overhead costs in P1. P2 will use 350000
direct labor hours and there will be $2000000 in overhead costs in
P2. Mott has two products A1 and B1. It takes two direct labor hours in
P1 and three direct labor hours in P2 to complete one unit of A1. It
takes one direct labor hour in P1 and four direct labor hours in P2 to
complete one unit of B1.RequiredWhich product will be
undercosted and which will be overcosted with the one-cost-pool system?
Support your answer with appropriate calculations.