In: Accounting
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 | $ | 4,600 | Machine hours | 2,700 | |
Cooking | 11,600 | Machine hours | 2,700 | |||
Product testing | 114,300 | Batches | 600 | |||
$ | 130,500 | |||||
Department 2 | Machine calibration | $ | 340,000 | Production runs | 800 | |
Labeling | 20,000 | Cases of output | 135,000 | |||
Defects | 7,000 | Cases of output | 135,000 | |||
$ | 367,000 | |||||
Support | Recipe formulation | $ | 87,000 | Focus groups | 75 | |
Heat, lights, and water | 54,000 | Machine hours | 2,700 | |||
Materials handling | 83,000 | Container types | 8 | |||
$ | 224,000 | |||||
Additional production information about its two product lines
follows.
Extra Fine | Family Style | |||
Units produced | 38,000 | cases | 97,000 | cases |
Batches | 380 | batches | 220 | batches |
Machine hours | 1,150 | MH | 1,550 | MH |
Focus groups | 64 | groups | 11 | groups |
Container types | 3 | containers | 5 | containers |
Production runs | 290 | runs | 510 | runs |
Problem 17-5A Parts 1, 2 & 3
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 $10 per case of Extra Fine and
$8 per case of Family Style.
3.a. If the market price of Extra Fine Salsa is
$18 per case and the market price of Family Style Salsa is $13 per
case, determine the gross profit per case for each product.
3.b. What might management conclude about the
Family Style Salsa product line?
5. If the market price is $18 per case of Extra Fine and $13 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.)
***please be advised, there is NO PART 4 to this question. It goes from 3b, to 5.
1)Total cases produced : 38000+97000= 135000
Total overhead : 130500+367000+224000=721500
Predetermined overhead rate :Total overhead /Total cases
= : 721500/135000
= $ 5.34 per case
Overhead assigned to Extra fine salsa : 5.34
overhead assigned to family style : $ 5.34
2)
Extra Fine | Family style | |
Direct material and direct labor | 10 | 8 |
overhead | 5.34 | 5.34 |
Total cost per case | 15.34 | 13.34 |
3a)
Extra Fine | Family style | |
Revenue | 18 | 13 |
cost | (15.34) | (13.34) |
Gross profit | 2.66 | (.34) |
3b)Family style salsa has a negative gross profit so it should be discontinued considering other factors
5)
overhead rate | Extra fine | Family style | |
Mixing | 4600/2700=1.7037 MH | 1150*1.7037= 1959 | 1550*1.7037=2641 |
cooking | 11600/2700=4.2963 MH | 1150*4.2963 = 4941 | 1550*4.2963=6659 |
product testing | 114300/600=190.5 BATCH | 380*190.5= 72390 | 220*190.5=41910 |
machine callibration | 340000/800= 425Runs | 425*290=123250 | 425*510=216750 |
labelling | 20000/135000=.14815 cases | 38000*.14815=5630 | 97000*.14815=14371 |
defects | 7000/135000=.05185case | 38000*.05185=1970 | 97000*.05185=5029 |
Receipe formulation | 87000/75=1160 focus groups | 1160*64=74240 | 1160*11=12760 |
Heat light and water | 54000/2700=20 MH | 1150*20=23000 | 1550*20=31000 |
material handling | 83000/8=10375 CT | 10375*3=31125 | 10375*5=51875 |
Total overhead | 338505 |
382995 |
|
cases | 38000 | 97000 | |
overhead per case | 338505/38000= 8.91 | 382995/97000= 3.95 | |
eXTRA fine | Family style | |
Sales | 18 |
13 |
less:direct material and labor | (10 | (8) |
(8.91) | (3.95) | |
Profit | (.91) | 1.05 |