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	$	6,100		Machine hours	2,500
	Cooking		10,900		Machine hours	2,500
	Product testing		114,100		Batches	500
		$	131,100
Department 2	Machine calibration	$	330,000		Production runs	600
	Labeling		16,500		Cases of output	170,000
	Defects		9,000		Cases of output	170,000
		$	355,500
Support	Recipe formulation	$	85,000		Focus groups	85
	Heat, lights, and water		43,000		Machine hours	2,500
	Materials handling		81,000		Container types	10
		$	209,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	36,000	cases	134,000	cases
Batches	360	batches	140	batches
Machine hours	1,050	MH	1,450	MH
Focus groups	60	groups	25	groups
Container types	8	containers	2	containers
Production runs	270	runs	330	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 $8 per case of Extra Fine and $7 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 $10 per case, determine the gross profit per case for each product.
3.b. What might management conclude about the Family Style Salsa product line?

Answer 1