Question

In: Accounting

Sara’s Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family...

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.

Solutions

Expert Solution

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

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