Question

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 Easy Slim? 

3. If Hi Voltage sells for $3.75 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 Easy Slim?

Answer 1

Solution 1 & 2:

Computation of cost of each product line and cost per unit - Activity based costing
Activity	Estimated Costs	Activity Base	Usage of Activity Base	Activity Rate	Hi - Voltage		Easyslim
					Usage	Allocated Costs	Usage	Allocated Costs
Mixing department:
Liquid materials	$2,304.00	Gallons	38400	$0.06	1400	$84	37000	$2,220
Dry materials	$6,941.00	Pounds	12620	$0.55	620	$341	12000	$6,600
Utilities	$1,422.00	Machine hours	3950	$0.36	200	$72	3750	$1,350
Bottling department:
Bottles	$77,000.00	Units	192500	$0.40	12500	$5,000	180000	$72,000
Labeling	$6,525.00	Labels per bottle	217500	$0.03	37500	$1,125	180000	$5,400
Machine setup	$20,000.00	Setups	800	$25.00	500	$12,500	300	$7,500
Total	$114,192.00					$19,122		$95,070
Nos of units						12500		180000
Cost per unit						$1.53		$0.53

Solution 3:

Price per unit = $3.75

Cost per unit of high voltage = $1.53

Profit (Loss) per unit = $3.75- $1.53 = $2.22 per unit

Solution 4:

Minimum price that company should set per bottle of easy slim = Cost per unit = $0.53