Question

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow. Strawberry Vanilla Chocolate Direct labor (per 1,000 gallons) $758 $833 $1,133 Raw materials (per 1,000 gallons) 808 508 608 Required: a. If the number of hours of labor per 1,000 gallons Is 62 for strawberry, 66 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation. b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following Information was discovered: Overhead Machine- hours Labor-hours Department SV Department C $88,480 $43,778 25,280 36,800 25,280 18,550 Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each. c. Compute the cost of 1,000 gallons of each flavor of Ice cream using the department allocation rates computed In requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of Ice cream are as follows: strawberry, 62, vanilla, 66, and chocolate, 158. Direct labor-hours by product remain the same as In requirement (a). Complete this question by entering your answers in the tabs below.

Answer 1

a.

Compute total cost per 1000 gallons as follows:

	Strawberry	vanilla	chocolate
Direct labor	758	833	1133
Raw materials	808	508	608
Overhead	62*3 = 186	66*3 = 198	100*3 = 300
Total cost	1752	1539	2041

Total cost = 1752 + 1539 + 2041 = $ 5332

b.

Compute allocate rate as follows:

	Allocation base		Allocation rate
Department SV	per machine hr	88480/25280	3.5
Department C	per labor hr	43778/18550	2.36

c.

Compute total cost as follows:

	Strawberry	vanilla	chocolate
Direct labor	758	833	1133
Raw materials	808	508	608
Overhead	62*3.5 = 217	66*3.5 = 231	158*3.5 = 553
Total cost	1783	1572	2294

Total cost = 1783 + 1572 + 2294 = 5649