In: Accounting
Jackie-O-Ville Delights manufactures two products, truffles and fudge. The company expects to produce and sell 3,200 cases of truffles and 2,100 cases of fudge during the year. Jackie-O-Ville Delights uses activity-based costing to compute overhead costs per product. Data relating to the company’s three activity cost pools are given below for the current year:
Truffles |
Fudge |
|||
Direct Materials |
$5.25 |
$3.20 |
||
Direct Labor |
$11.15 |
$8.95 |
||
Activity Cost Pool |
Estimated Overhead Costs |
Expected Activity |
||
Truffles |
Fudge |
Total |
||
Machine Setups |
$14,040 |
260 |
260 |
520 |
Purchase orders |
$139,400 |
1080 |
2,320 |
3,400 |
General Factory |
$202,320 |
7,040 |
4,200 |
11,240 |
Required:
Using the activity-based costing approach, determine the overhead rates for each activity cost pool. 6 points)
Using the above overhead rates determine the overhead cost charged per case to each product (20 points)
Determine the total cost per unit for each product (6 points)
Calculate the cost per unit under the traditional method of allocating overhead using a plant wide predetermined overhead rate using direct labor cost as the activity level.
Calculate the percentage difference in price if the company desires a 40% product profit margin and how it may impact the Truffles and Fudge market.
1) Caculation of Overhead Rate (Amounts in $)
Activity Cost Pool | Estimated Overhead Costs (A) | Total Expected Activity (B) | Overhead Rate (A/B) |
Machine Setups | 14,040 | 520 | 27 |
Purchase orders | 139,400 | 3,400 | 41 |
General Factory | 202,320 | 11,240 | 18 |
2) Calculation of Overhead Cost per case (Amounts in $)
Particulars | Truffles | Fudge |
a) Machine Setups | (260*$27) = 7,020 | (260*$27) = 7,020 |
b) Purchase Orders | (1,080*$41) = 44,280 | (2,320*$41) = 95,120 |
c) General Factory | (7,040*$18) = 126,720 | (4,200*$18) = 75,600 |
d) Total Overhead Cost (a+b+c) | 178,020 | 177,740 |
e) No. of Cases | 3,200 cases | 2,100 cases |
f) Overhead cost per case (d/e) | 55.63 | 84.64 |
3) Calculation of cost per unit of each product (Amounts in $)
Particulars | Truffles | Fudge |
Direct Materials per unit | 5.25 | 3.20 |
Direct Labor per unit | 11.15 | 8.95 |
Overhead cost per unit | 55.63 | 84.64 |
Total cost per unit | 72.03 | 96.79 |
4) Total direct labor cost for both products = (3,200 cases*$11.15)+(2,100 cases*$8.95)
= $35,680+$18,795 = $54,475
Total Overhead Cost = $14,040+$139,400+$202,320 = $355,760
Overhead cost per direct labor cost = $355,760/$54,475 = $6.530702
Calculation of cost per unit of each product (Amounts in $)
Particulars | Truffles | Fudge |
Direct Materials per unit | 5.25 | 3.20 |
Direct Labor per unit | 11.15 | 8.95 |
Overhead cost per unit | (11.15*6.530702) = 72.82 | (8.95*6.530702) = 58.45 |
Total cost per unit | 89.22 | 70.60 |