Question

 Problem 17-4A Evaluating product line costs and prices using ABC LO P3

 Bright Day Company produces two beverages, Hi-Voltage and EasySlim. Data about these products follow.

 Additional data from its two production departments follow.

 Required:

 1& 2. Determine the cost of each product line using ABC. What is the cost per bottle for Hi-Voltage and EasySlim?

 3. If Hi-Voltage sells for $6.25 per bottle, how much profit does the company earn per bottle of Hi-Voltage that it sells?

 4. What is the minimum price that the company should set per bottle of EasySlim?

Answer 1

Solution 1&2:

Allocation of overhead and computation of overhead cost per unit - ABC
Activity	Expected cost	Activity Base	Expected Activity	Activity Rate	Hi-voltage		Easyslim
					Activity Driver incurred	Overhead assigned	Activity Driver incurred	Overhead assigned
Mixing department
Liquid materials	$870.00	Gallons	29000	$0.03	2000	$60.00	27000	$810.00
Dry materials	$4,907.00	Pounds	14020	$0.35	1020	$357.00	13000	$4,550.00
Utilities	2245.00	Machine hours	4490	$0.50	140	$70.00	4350	$2,175.00
Bottling department
Bottles	63150.00	Units	210500	$0.30	10500	$3,150.00	200000	$60,000.00
Labeling	21575.00	Labels per bottle	5	$4,315.00	3	$12,945.00	2	$8,630.00
Machine setup	54000.00	Setups	1350	$40.00	600	$24,000.00	750	$30,000.00
Total	$146,747.00					$40,582.00		$106,165.00
Nos of units						10500		200000
Overhead cost per unit						$3.86		$0.53

solution 3:

Computation of Profit (Loss) per unit
Particulars	Hi-voltage
Selling price per unit	$6.25
Cost per unit	$3.86
Profit (Loss) per unit	$2.39

solution 4:

Minimum price to be set for easyslim = Cost per unit = $0.53 per unit