Question

Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia’s single plant has the capacity to make 97,000 packages of chocolate annually. Currently, Mercia sells to only two customers: Vern’s Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores). Vern’s orders 60,400 packages and Mega Stores orders 22,000 packages annually. Variable manufacturing costs are $24 per package, and annual fixed manufacturing costs are $627,000. The gourmet chocolate business has two seasons, holidays and non-holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months. Vern’s orders the same amount each month, so Vern’s orders 19,200 packages during the holidays and 41,200 packages in the non-holiday season. Mega Stores only carries Mercia’s chocolates during the holidays. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it. In the solution from where we get the percentage

Answer 1

Mercia Chocolates
Annual Capacity (Packages of Chocolate)	97000
Sales in Holidays to Vern	19200
Sales in Holidays to Mega	22,000
Total Sales in Holidays	41,200
Months in Holidays	4
Equivalent Monthly Sales	10,300
Sales in Non-Holidays to Vern	41,200
Total Sales in Non-Holidays	41,200
Months in Non-Holidays	8
Equivalent Monthly Sales	5,150
Allocation of Fixed Cost ($627000) will be done in the Ratio of Equivalent Holiday and Non-Holiday Sales
Calculation:	Holiday Sales	Non-Holiday Sales	Total
Equivalent Monthly Sales	10,300	5,150	15,450
Allocation of Fixed Cost ($627000)	$418,000	$209,000	$627,000
Number of Packages Sold	41,200	41,200
Fixed Cost Per Package	$10.14	$5.07
Variable Cost	$24	$24
Product Cost Per Package	$34.14	$29.07	$(5.07)
The product cost for the Holiday season will be $34.14
The product cost for the Non-Holiday season will be $29.07