Question

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)	$	757		$	832		$	1,132
Raw materials (per 1,000 gallons)		807			507			607

Required:

a. If the number of hours of labor per 1,000 gallons is 60 for strawberry, 65 for vanilla, and 50 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b. Charlene's department uses older, outdated machines.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	$	90,972		$	27,750
Machine-hours		25,270			36,700
Labor-hours		25,270			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. (Round your answers to 2 decimal places.)

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, 65; and chocolate, 157. Direct labor-hours by product remain the same as in requirement (a).

Answer 1

Part-a
		Strawberry	Vanilla	Chocolate
Direct Labor		$757.00	$832.00	$1,132.00
Direct Material		$807.00	$507.00	$607.00
Overheads		$180.00	$195.00	$150.00
		(60*3)	(65X3)	(50X3)
Total Cost per 1000 gallon		$1,744.00	$1,534.00	$1,889.00

Part b
		Total Overheads (a)	Activity Pool (b)	Allocation Rate (a/b)
Department SV		$90,972.00	25270 Machine Hour	$3.60
Department C		$27,750.00	18500 Labour Hours	$1.50

Part c
		No. of Activity (b)	Labor Hours	Overhead Rate (a)	Allocated OH (b/a)
Strawberry		60	Machine Hour	$3.60	$216.00
Vanilla		65	Machine Hour	$3.60	$234.00
Chocolate		157	Labour Hour	$1.50	$235.50
Total
		Strawberry	Vanilla	Chocolate
Direct Labor		$757.00	$832.00	$1,132.00
Direct Material		$807.00	$507.00	$607.00
Overheads		$216.00	$234.00	$235.50
Total Cost per 1000 gallon		$1,780.00	$1,573.00	$1,974.50