Question

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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	$	4,700		Machine hours	1,100
	Cooking		10,700		Machine hours	1,100
	Product testing		112,700		Batches	700
		$	128,100
Department 2	Machine calibration	$	260,000		Production runs	500
	Labeling		11,000		Cases of output	155,000
	Defects		4,500		Cases of output	155,000
		$	275,500
Support	Recipe formulation	$	92,000		Focus groups	40
	Heat, lights, and water		22,000		Machine hours	1,100
	Materials handling		67,000		Container types	10
		$	181,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	22,000	cases	133,000	cases
Batches	220	batches	480	batches
Machine hours	350	MH	750	MH
Focus groups	25	groups	15	groups
Container types	6	containers	4	containers
Production runs	220	runs	280	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.
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 $5 per case of Extra Fine and $4 per case of Family Style.
3.a. If the market price of Extra Fine Salsa is $16 per case and the market price of Family Style Salsa is $7 per case, determine the gross profit per case for each product.
3.b. What might management conclude about the Family Style Salsa product line?

4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $5 per case of Extra Fine and $4 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.)

5. If the market price is $16 per case of Extra Fine and $7 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