Question

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 Activity Mixing Cooking Product testing Driver Machine hours Machine hours Batches Quantity 2,600 2,600 1,000 Department 2 Machine calibration Labeling Defects Overhead cost $ 6,200 12,000 114,200 $ 132,400 $ 335,000 17,000 7,000 $ 359,000 $ 86,000 52,000 82,000 $ 220,000 Production runs Cases of output Cases of output 800 160,000 160,000 Support 80 Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 2,600 10 Additional production information about its two product lines follows. Units produced Batches Machine hours Focus groups Container types Production runs Extra Fine 37,000 cases 370 batches 1,100 MH 62 groups 9 containers 280 runs Family Style 123,000 cases 630 batches 1,500 MH 18 groups 1 containers 520 runs

Answer 1

Solution 1:

Plantwide overhead rate per case = Total overhead / Total cases = $711,400 / 160000 = $4.45 per case

Solution 2:

Computation of per case cost (Traditional costing)
	Extra Fine	Family Style
Direct labor and Materials	$9.00	$8.00
Overhead per unit	$4.45	$4.45
Total Cost per case	$13.45	$12.45

Solution 3a:

Computation of Gross profit per unit (Traditional costing)
	Extra Fine	Family Style
Selling price per unit	$17.00	$12.00
Cost per unit	$13.45	$12.45
Gross profit per unit	$3.55	-$0.45

Solution 3b:

Management might conclude about family style salsa is non profitable product and the same may be discontinued.