In: Accounting

# Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct...

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow.  Strawberry Vanilla Chocolate Direct labor (per 1,000 gallons)$ 768 $843$ 1,143 Raw materials (per 1,000 gallons) 818 518 618

Required:

a. If the number of hours of labor per 1,000 gallons is 60 for strawberry, 70 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered:

 Department SV Department C Overhead $93,906$ 38,665 Machine-hours 25,380 37,800 Labor-hours 25,380 18,500

Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each.

c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 60; vanilla, 70; and chocolate, 168. Direct labor-hours by product remain the same as in requirement (a).

• Required A
• Required B
• Required C

If the number of hours of labor per 1,000 gallons is 60 for strawberry, 70 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

 Total Cost Strawberry Vanilla Chocolate
 Total Cost Strawberry Vanilla Chocolate
 Allocation Rate Department SV per machine hour Department C per labor hour

## Solutions

##### Expert Solution

Solution

Main Street Ice Cream Company

Computation of total cost of 1,000 gallons of each flavor of ice cream using plantwide allocation rates:

Allocation of overhead at $3 per direct labor hours - strawberry 60 hours at$3 = $180 Vanilla 70 hours at$3      = $210 Chocolate 100 at$3          = $300 a. Computation the allocation rate for each department: Department SV allocation rate =$3.70 per machine hour

Department C allocation rate = $2.09 per labor hour Computations: Department SV – allocation basis – machine hours Allocation rate = total cost/machine hours Total cost =$93,906

Machine hours = 25,380

Allocation rate = $93,906/25,380 =$3.70 per machine hour

Department C – allocation basis – labor hours

Allocation rate = overhead cost/total labor hours

##### Beta Fish Corporation uses a predetermined overhead rate based on direct labor hours to allocate manufacturing...
Beta Fish Corporation uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. The company estimated that it would incur​ $600,500 of manufacturing overhead during the year and that​ 150,700 direct labor hours would be worked. During the​ year, the company actually incurred manufacturing overhead costs of​$582,300 and​ 135,300 direct labor hours were worked. By how much was manufacturing overhead overallocated or underallocated for the​ year? (Round intermediary calculations to the nearest cent...
##### Waymire Ltd. currently uses a traditional costing system based on direct labour hours to allocate overhead....
Waymire Ltd. currently uses a traditional costing system based on direct labour hours to allocate overhead. This year, the company has budgeted to produce 1668 units of one of its products. Each unit requires 5 hours of direct labour. For the coming year, the company is considering changing to an activity based costing system by allocating overhead based on 3 activities. The following are the activities, budgeted total cost and cost drivers per activity for the upcoming year: Activity Cost...