Question

Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia's single plant has the capacity to make 120,000 packages of chocolate annually. Corrently, Merclasells to only two customers: Ver's Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores) Vern's orders 63,000 packages and Mega Stores order 25.000 packages annually Variable manufacturing costs are $30 per package, and annual fixed manufacturing costs are $573,000 The gourmet chocolate business has two seasons, holidays and non holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months Verns orders the same amount each month, so Vern's orders 21.000 packages during the holidays and 42.000 packages in the non holiday season Mega Store only comes Marcia's chocolates during the holidays. Required: a. Calculate the product cost for each season with excess capacity costs assigned to seas decimal places.) and final answers to 2 Non-holiday Holiday Product Cost per package per package L b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it (Roundy places.) Non-holiday Product Cost per package per package Holiday

Answer 1

With Demand Fluctuations reason for the excess capacity is to benefit two customers i.e. vern's Chocolates and Mega Stores. The issue here with is how to treat extra costs assocted with the fixed expenses. =total fixed manifacturing cost/ 12 months The Fixed Manifacturing costs of each month are 47,750.00 Fixed Manifacturing cost for = Holiday season in months*each month fixed manifacturing cost Holiday Season 191,000.00 Non Holiday season in months each month fixed manifacturing cost Non Holiday Season 382,000.00 Excess capacity costs assigned to the season in which it is incurred, then to the products in that season a Non Holiday Season 42000 products to vern's chocolates Overhead cost/ Unit +382000/42000 Units 9.10 Varable Cost 30.00 Total Cost of Product 39.10 25000 from Mega Stores and 21000 from vern's Chocolates Holiday Season

Overhead cost/ Unit +191000/ 46000 Units 4.15 Varable Cost 30.00 Total Cost of Product 34.15 b Excess capacity costs assigned to the season in which it is requiring, then to the products in that season The capacity costs in each season are.. 286,500.00 Non Holiday Season 42000 products to vern's chocolates 286500 2/3 Overhead Rate 191,000.00 4.55 Variable cost 30.00 Total Production Cost 34,55 25000 from Mega Stores and 21000 from vern's Chocolates Holiday Season 286500+286500/3 Overhead rate 382,000.00 8.30 Varable Cost 30.00 Total Cost of Product 38.30

With Demand Fluctuations reason for the excess capacity is to benefit two customers i.e. vern's Chocolates and Mega Stores. The issue here with is how to treat extra costs assocted with the fixed expenses. The Fixed Manifacturing costs of each month are =total fixed manifacturing cost/ 12 months 47,750.00 Fixed Manifacturing cost for Holiday Season =+ Holiday season in months * each month fixed manifacturing cost 191,000.00 Non Holiday Season =+ Non Holiday season in months * each month fixed manifacturing cost 382,000.00 Excess capacity costs assigned to the season in which it is incurred, then to the products in that season Non Holiday Season 42000 products to vern's chocolates Overhead cost / Unit +382000/ 42000 Units Varable Cost Total Cost of Product 9.10 30.00 39.10 Holiday Season 25000 from Mega Stores and 21000 from vern's Chocolates

Overhead cost / Unit +191000/ 46000 Units 4.15 30.00 34.15 Varable Cost Total Cost of Product b Excess capacity costs assigned to the season in which it is requiring, then to the products in that season Non Holiday Season 42000 products to vern's chocolates Percentage of Manifacturing cost required Overhead cost / Unit 47.73% +(573000*47.73%)/42000 units Varable Cost Total Cost of Product 6.55 30.00 36.55 Holiday Season 25000 from Mega Stores and 21000 from vern's Chocolates Percentage of Manifacturing cost required Overhead cost / Unit 52.27% +573000*52.27% Varable Cost Total Cost of Product 6.51 30.00 36.51