Kima Company manufactures and sells 2 models of a home appliance. The Standard model is a basic...


Kima Company manufactures and sells 2 models of a home appliance. The Standard model is a basic appliance with mostly manual features, while the Galaxy model is highly automated. The appliances are produced to order, and there are no inventories at the end of the year. The cost accounting system at Kima allocates overhead to products based on direct labor cost. Overhead in year 1, which just ended, was $3,345,000. Other data for year 1 for the two products follow:

Standard ModelGalaxy Model
(20,000 units)(3,000 units)
Sales revenue$6,100,000$2,800,000
Direct materials2,500,000400,000
Direct labor1,700,000530,000


a. Compute product line profits/loss for the Standard model and the Galaxy model for year 1. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

Allocating Overhead

When computing a product line's profitability, the company must first understand how to allocate overhead costs to each product. A typical method is to base the allocation on direct labor cost. In this method, overhead costs are allocated based on direct labor cost per unit.

Answer and Explanation: 1

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Standard model profit: $813,408

Galaxy model loss: -$388,408


Solution notes:

Overhead cost calculations:

Calculate the overhead cost per...

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Learn more about this topic:

Item Unit Price & Total Cost: Calculations & Examples


Chapter 52 / Lesson 9

Learn the unit price definition, see unit price examples, and explore overhead and production costs. See how total cost relates to unit price and how it is calculated.

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