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	$	5,600		Machine hours	2,000
	Cooking		11,200		Machine hours	2,000
	Product testing		113,600		Batches	800
		$	130,400
Department 2	Machine calibration	$	305,000		Production runs	400
	Labeling		17,500		Cases of output	110,000
	Defects		4,500		Cases of output	110,000
		$	327,000
Support	Recipe formulation	$	80,000		Focus groups	80
	Heat, lights, and water		38,000		Machine hours	2,000
	Materials handling		76,000		Container types	8
		$	194,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	31,000	cases	79,000	cases
Batches	310	batches	490	batches
Machine hours	800	MH	1,200	MH
Focus groups	55	groups	25	groups
Container types	6	containers	2	containers
Production runs	220	runs	180	runs
2. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $7 per case of Extra Fine and $6 per case of Family Style. (Round your intermediate calculations to 2 decimal places. Round "Activity Rate" and "Overhead cost per unit" answers to 2 decimal places.) 3. If the market price is $16 per case of Extra Fine and $11 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.)

Answer 1

Statement showing allocation of overhead as per ABC
ans 5					Extra fine		Family style
Activity	Cost Pool (A)	Cost Drive	No. of Driver Pool (B)	Activity Rate / Driver(C=A/B)	No. of Driver (d)	Allocated Overhead (CXD)	No. of Driver ( E)	Allocated Overhead (CXE)
Mixing and Cooking	$16,800	Machine hours	2000	$8.40	800	$6,720	1200	$10,080
Product testing	$1,13,600	Batches	800	$142.00	310	$44,020	490	$69,580
Machine calibration	$3,05,000	Production runs	400	$762.50	220	$1,67,750	180	$1,37,250
Labeling & Defects	$22,000	Cases of output	110000	$0.20	31000	$6,200	79000	$15,800
Recipe formulation	$80,000	Focus groups	80	$1,000.00	55	$55,000	25	$25,000
Heat, lights, and water	$38,000	Machine hours	2000	$19.00	800	$15,200	1200	$22,800
Materials handling	$76,000	Container types	8	$9,500.00	6	$57,000	2	$19,000
Total	$6,51,400			Total Overhead cost assigned		$3,51,890	Total overhead assigned	$2,99,510
				Total units prduced		$31,000	Total units prduced	$79,000
				Overhead cost per unit		$11.35	Overhead cost per unit	$3.79

Computation of Total Cost per Case
	Extra fine	Family style
Direct material & Labour	$7.00	$6.00
Overhead	$11.35	$3.79
Total Cost	$18.35	$9.79

Computation of Profit or Loss
	Extra fine	Family style
Sales Price	$16.00	$11.00
Cost	$18.35	$9.79
Profit ( Loss)	-$2.35	$1.21