Question

Problem 17-5A Pricing analysis with ABC and a plantwide overhead rate LO A1, A2, P1, P3

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Sara’s Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company’s production support activities follow.

Process	Activity	Overhead cost			Driver	Quantity
Department 1	Mixing	$	4,500		Machine hours	1,500
	Cooking		11,250		Machine hours	1,500
	Product testing		112,500		Batches	600
		$	128,250
Department 2	Machine calibration	$	250,000		Production runs	400
	Labeling		12,000		Cases of output	120,000
	Defects		6,000		Cases of output	120,000
		$	268,000
Support	Recipe formulation	$	90,000		Focus groups	45
	Heat, lights, and water		27,000		Machine hours	1,500
	Materials handling		65,000		Container types	8
		$	182,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	20,000	cases	100,000	cases
Batches	200	batches	400	batches
Machine hours	500	MH	1,000	MH
Focus groups	30	groups	15	groups
Container types	5	containers	3	containers
Production runs	200	runs	200	runs

Problem 17-5A Part 5

5. If the market price is $18 per case of Extra Fine and $9 per case of Family Style, determine the gross profit per case for each product. (Round your intermediate calculations and final answers to 2 decimal places.)

Extra Fine	Loss	___?___
Family Style	Profit	___?___

Answer 1

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Sara’s Salsa Company
Calculation of total overhead				Activity Usages			ABC rates
Process	Activity cost pool	Cost Driver	Cost	Extra Fine	Family Style	Total
Department 1	Mixing	Machine hours	4,500.00	500.00	1,000.00	1,500.00	3.00
	Cooking	Machine hours	11,250.00	500.00	1,000.00	1,500.00	7.50
	Product testing	Batches	112,500.00	200.00	400.00	600.00	187.50
	Total Cost assigned		128,250.00
				Activity Usages			ABC rates
Process	Activity cost pool	Cost Driver	Cost	Extra Fine	Family Style	Total
Department 2	Machine calibration	Production runs	250,000.00	200.00	200.00	400.00	625.00
	Labeling	Cases of outputs	12,000.00	20,000.00	100,000.00	120,000.00	0.10
	Defects	Cases of outputs	6,000.00	20,000.00	100,000.00	120,000.00	0.05
	Total Cost assigned		268,000.00
				Activity Usages			ABC rates
Process	Activity cost pool	Cost Driver	Cost	Extra Fine	Family Style	Total
Support	Recipe formulation	Focus groups	90,000.00	30.00	15.00	45.00	2,000.00
	Heat, lights and water	Machine hours	27,000.00	500.00	1,000.00	1,500.00	18.00
	Material Handling	Container types	65,000.00	5.00	3.00	8.00	8,125.00
	Total Cost assigned		182,000.00
	Total Overhead costs		578,250.00
	Allocation table			Extra Fine		Family Style
Process	Activity cost pool	Cost Driver	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned
Department 1	Mixing	Machine hours	3.00	500.00	1,500.00	1,000.00	3,000.00
	Cooking	Machine hours	7.50	500.00	3,750.00	1,000.00	7,500.00
	Product testing	Batches	187.50	200.00	37,500.00	400.00	75,000.00
Department 2	Machine calibration	Production runs	625.00	200.00	125,000.00	200.00	125,000.00
	Labeling	Cases of outputs	0.10	20,000.00	2,000.00	100,000.00	10,000.00
	Defects	Cases of outputs	0.05	20,000.00	1,000.00	100,000.00	5,000.00
Support	Recipe formulation	Focus groups	2,000.00	30.00	60,000.00	15.00	30,000.00
	Heat, lights and water	Machine hours	18.00	500.00	9,000.00	1,000.00	18,000.00
	Material Handling	Container types	8,125.00	5.00	40,625.00	3.00	24,375.00
	Total Cost assigned				280,375.00		297,875.00
	Number of units				20,000.00		100,000.00
	Overhead cost per unit				14.02		2.98

Answer 5	Extra Fine	Family Style
Sell price per unit	18.00	9.00
Total cost per unit	14.02	2.98
Profit per unit	3.98	6.02