Question

Cathy and Tom's Specialty Ice Cream Company operates a small production facility for the local community. The facility has the capacity to make 25,400 gallons of the single flavor, GUI Chewy, annually. The plant has only two customers, Chuck's Gas & Go and Marcee's Drive & Chew DriveThru. Annual orders for Chuck's total 12,700 gallons and annual orders for Marcee's total 6,350 gallons. Variable manufacturing costs are $0.90 per gallon, and annual fixed manufacturing costs are $32,600.

The ice cream business has two seasons, summer and winter. Each season lasts exactly six months. Chuck's orders 6,350 gallons in the summer and 6,350 gallons in the winter. Marcee's is closed in the winter and orders all 6,350 gallons in the summer.Cathy and Tom's Specialty Ice Cream Company operates a small production facility for the local community. The facility has the capacity to make 25,400 gallons of the single flavor, GUI Chewy, annually. The plant has only two customers, Chuck's Gas & Go and Marcee's Drive & Chew DriveThru. Annual orders for Chuck's total 12,700 gallons and annual orders for Marcee's total 6,350 gallons. Variable manufacturing costs are $0.90 per gallon, and annual fixed manufacturing costs are $32,600.

a. Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred.

Winter	$3.47	per gallon
Summer	$2.18	per gallon

b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it.

Winter	????	per gallon
Summer	????	per gallon

Answer 1

Capacity cost for each season=$32600/2=$16300

Product Cost

a.

Winter

Overhead Rate    S16300/6350       $2.57

Production Cost ($2.57 + $.90)     $3.47 (per Gallon)

Summer

Overhead Rate   S16300/12700    $1.28

Production Cost ($1.28 + $0.90)   $2.18 (per Gallon)

b.

Winter

Overhead Rate    S16300*.50 /6350                    $1.28

Production Cost ($1.28 + $.90)                            $2.18 (per Gallon)

Summer

Overhead Rate   S16300 + 16300 *.50 /12700    $1.93

Production Cost ($1.93 + $0.90)                             $2.83 (per Gallon)