Question

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	$	4,800		Machine hours	1,200
	Cooking		11,100		Machine hours	1,200
	Product testing		112,800		Batches	750
		$	128,700
Department 2	Machine calibration	$	265,000		Production runs	400
	Labeling		10,000		Cases of output	165,000
	Defects		6,500		Cases of output	165,000
		$	281,500
Support	Recipe formulation	$	93,000		Focus groups	60
	Heat, lights, and water		30,000		Machine hours	1,200
	Materials handling		68,000		Container types	10
		$	191,000

Additional production information about its two product lines follows.

Extra Fine		Family Style
Units produced	23,000	cases	142,000	cases
Batches	230	batches	520	batches
Machine hours	400	MH	800	MH
Focus groups	30	groups	30	groups
Container types	7	containers	3	containers
Production runs	230	runs	170	runs

Required:
1. Using a plantwide overhead rate based on cases, compute the overhead cost that is assigned to each case of Extra Fine Salsa and each case of Family Style Salsa. PLANT OVERHEAD RATE ? $___ PER CASE
2. Using the plantwide overhead rate, determine the total cost per case for the two products if the direct materials and direct labor cost is $6 per case of Extra Fine and $5 per case of Family Style. EXTRA FINE ___ PER UNIT.. FAMILY STYLE ___PER UNIT
3.a. If the market price of Extra Fine Salsa is $17 per case and the market price of Family Style Salsa is $8 per case, determine the gross profit per case for each product. EXTRA FINE ____ FAMILY STYLE ____
3.b. What might management conclude about the Family Style Salsa product line?

5. If the market price is $17 per case of Extra Fine and $8 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 Family Style

Answer 1

Part-1

Plant wide Overhead Rate = Total overhead cost/ total No.of Cases

=(128,700+281,500+191,000)/(23,000+142,000)cases

$601200/165000 Cases=3.64 / Cases

Part-2 : Computation of Total Cost per Cases Using Planwide Overhead Rate ( in $)
	Extra fine	Family style
Direct materials+ direct labor	6.00	5.00
Overhead cost	3.64	3.64
manufacturing cost per case	9.64	8.64

Part-3(a): Computation of Gross Profit( in $)
	Extra fine	Family style
Selling price per case	17.00	8.00
Manufacturing cost per case	9.64	8.64
Gross margin(loss) per case	7.36	-0.64

Part-3(b), In Family Style management product Shows net Loss of $0.64 . However , Contribution per Unit is (8-5) $3 per Unit . Hence , Management should continue the same product.

Part-5: Computation of Gross Profit( in $)
	Extra fine	Family style
Selling price per case	17.00	8.00
Direct material + Labour	-6.00	-5.00
OH Cost	-12.99	-2.13
Gross margin(loss) per case	-1.99	0.87

Working note for -5

W/No-1 Computation of Overhead Rate
Mixing& cooking	(4800+11100)/1200	13.25	MH
product testing	112800/750	150.4	batch
machine calibration	265000/400	662.5	run
labeling & defects	(10000+6500)/165000	0.1	case
recipe formulations	93000/60	1550	group
heat, light and water	30000/1200	25	MH
material handling	68000/10	6800	type
W/ No-2 Allocation of OH
	Extra fine		Family style
Mixing& cooking	400*13.25	5,300.00	800*13.25	10,600.00
product testing	230*150.40	34,592.00	520*150.40	78,208.00
machine calibration	230*662.50	1,52,375.00	170*662.50	1,12,625.00
labeling & defects	23000*.10	2,300.00	142000*.10	14,200.00
recipe formulations	30*1550	46,500.00	30*1550	46,500.00
heat, light and water	400*25	10,000.00	800*25	20,000.00
material handling	7*6800	47,600.00	3*6800	20,400.00
total overheads		2,98,667.00		3,02,533.00
No. of Unit( in Cases)		23,000.00		1,42,000.00
OH Cost / Cases		12.99		2.13

Solution for part-5 also provided . Kindly revise rating, if you are satisfied.