Question

Required information [The following information applies to the questions displayed below.) 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 Department 1 Mixing Cooking Product testing Quantity 1,900 1,900 1,000 Department 2 Machine calibration Labeling Defects Overhead cost Driver $ 5,5ee Machine hours 11,600 Machine hours 113,500 Batches $130, 600 $300,000 Production runs 15.ee Cases of output 9,000 Cases of output $324,000 $100,000 Focus groups 38,000 Machine hours 75,000 Container types $213, cee 400 120,000 120,000 Support Recipe formulation Heat, lights, and water Materials handling 40 1,900 12 Additional production information about its two product lines follows Units produced Batches Machine hours Focus groups Container types Production runs Extra Fine 30,000 cases 300 batches 750 MH 38 groups 9 containers 210 runs Family Style 90,000 cases 700 batches 1,150 MH 10 groups 3 containers 190 runs

Answer 1

Plant wide overhead rate = total overheads/total cases

= (130,600+324000+213000)/(30,000+90,000)

=$5.56333 per case

Total cost

Extra fine =$6+5.56 =$11.56

Family style = 5+5.56 =$10.56

Gross profit = selling price - cost

Extra fine = 15-11.56 =$3.44

Family style = 10-10.56 =$(0.56)

3b management will conclude that the family style line is unprofitable and should be eliminated