Question

Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:

	Rose	Violet
Expected sales (in cases)	50,000	10,000
Selling price per case	$100	$80
Direct labor hours	36,000	6,000
Machine hours	10,000	3,000
Receiving orders	50	25
Packing orders	100	50
Material cost per case	$50	$43
Direct labor cost per case	$10	$7

The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.

	Fixed		Variable
Direct labor benefits	$          —		$200,000
Machine costs	200,000*		262,000
Receiving department	225,000		—
Packing department	125,000		—
Total costs	$550,000		$462,000

^* All depreciation

Required:

1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round the number of break-even packages to the nearest whole number.

Break-even cases of Rose	cases
Break-even cases of Violet	cases

2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.

Answer 1