Morton Company has two divisions. Sales, direct materials cost,direct labor cost, and manufacturing overhead...

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Accounting

Morton Company has two divisions. Sales, direct materials cost,direct labor cost, and manufacturing overhead data for Morton’s twodivisions are available below. Note: All of Morton Company’sproducts are sold in competitive markets.
Missile Salt
Products Products
Sales $1,500,000 $1,000,000
Direct labor (800,000) (300,000)
Direct materials (100,000) (40,000)
Manufacturing overhead* (400,000) (150,000)
Gross profit $200,000 $510,000
*Manufacturing overhead is allocated to production based on theamount of direct labor cost. Morton has determined that its totalmanufacturing overhead cost of $550,000 is a mixture of batch-levelcosts and product line costs.
Morton has assembled the following information concerning themanufacturing overhead costs, the annual number of productionbatches, and the number of product lines in each division.
Total Manufacturing
Overhead Missile Salt
Costs Products Products
Batch-level overhead $250,000 10 batches 90 batches
Product line overhead 300,000 1 line 9 lines $550,000
Which ONE of the following statements is MOST CORRECT?
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have decreased by$345,000.
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have decreased by$25,000.
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have increased by$345,000.
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Salt Division would have decreased by$285,000.
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Salt Division would have increased by$285,000.
If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have increased by$25,000.

Answer & Explanation Solved by verified expert

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All working forms part of the answer Step 1 Calculation of Activity Rates using ABC method Overheads Cost Cost driver No of cost drivers Activity rate per cost driver A B C AB Batch Level 25000000 No of batches 100 250000 per batch Product line 30000000 No of lines 10 3000000 per line Step 2 Allocation of overheads to Missile Division Missile Division See Answer

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In: AccountingMorton Company has two divisions. Sales, direct materials cost,direct labor cost, and manufacturing overhead data...Morton Company has two divisions. Sales, direct materials cost,direct labor cost, and manufacturing overhead data for Morton’s twodivisions are available below. Note: All of Morton Company’sproducts are sold in competitive markets.Missile SaltProducts ProductsSales $1,500,000 $1,000,000Direct labor (800,000) (300,000)Direct materials (100,000) (40,000)Manufacturing overhead* (400,000) (150,000)Gross profit $200,000 $510,000*Manufacturing overhead is allocated to production based on theamount of direct labor cost. Morton has determined that its totalmanufacturing overhead cost of $550,000 is a mixture of batch-levelcosts and product line costs.Morton has assembled the following information concerning themanufacturing overhead costs, the annual number of productionbatches, and the number of product lines in each division.Total ManufacturingOverhead Missile SaltCosts Products ProductsBatch-level overhead $250,000 10 batches 90 batchesProduct line overhead 300,000 1 line 9 lines $550,000Which ONE of the following statements is MOST CORRECT?If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have decreased by$345,000.If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have decreased by$25,000.If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have increased by$345,000.If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Salt Division would have decreased by$285,000.If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Salt Division would have increased by$285,000.If the activity-based costing system had been used in the mostrecent year in place of the traditional overhead allocationtechnique, profit for the Missile Division would have increased by$25,000.