Question

QUESTION 14

Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves?

		Direct labor-hours
		Machine-hours
		Power consumption
		Machine setups

2.5 points   

QUESTION 15

Goodman Corporation has sales of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, the degree of operating leverage is:

		0.93
		0.79
		1.73
		2.67

Answer 1

1) Daily labour hours

Daily labour hours is the the least appropriate allocation base for allocating overhead in a highly automated manufacturer. Since in highly automated manufacturer there would be less usage of manual labour hours.

2)   1.73

Degree of operating leverage = Sales - Variable cost / Sales-variable cost-fixed cost

Sales = 3000 units *$80 =$240,000

Variable cost = $240,000*35% = $84,000

Fixed cost = $66,000

Degree of operating leverage = $240,000-84,000 / $240,000-80,000-66,000

= $156,000 / 90,000 = 1.73