Question

Idaho Potatoes (IP) grows and processes potatoes in its one plant. It sells potatoes to two markets - retail and institutional. The following information is available after a recent year-end: Retail 900,000 Institutional 100,000 Total 1,000,000 $135,000 $15,000 $150,000 Pounds of Potatoes Direct Material Cost Production Support $983,000 IP currently allocates production support on the basis of pounds of potatoes. IP recently made a bid to supply 25,000 pounds of potatoes to a college. It wants to add a profit of 20% of the cost in determining the selling price. Required • Using Excel, create a schedule showing the direct materials, production support for each product and the total cost. • Calculate the unit cost for each product • Calculate the "bid" on the 25,000 pounds of potatoes Step by Step Instructions 1. Calculate the overhead rate for the production support 2. Allocate the production support to the two products 3. Calculate the total cost for each product 4. Calculate the cost per pound for each product 5. Calculate the cost of the order of 25,000 pounds (institutional customer) 6. Add the profit to the order of 25,000 pounds 7. Calculate the total price of 25,000 pounds to the institutional customer

Answer 1

	Calculation of overhead rate for Production Support
	Production support cost	$983,000
	Total Pounds of Potatoes	1000000
	Overhead rate per potatoes	$0.983
		Retail	Instituitional
	Direct material costs	$135,000	$15,000
	Overhead cost	$884,700	$98,300
	Total Cost	$1,019,700	$113,300
	Pounds of potatoes	900,000	100,000
	Cost per Pound	$1.133	$1.133
	Cost of order 25,000 pound(insituitional)	$28,325
	Add: Profit margin required 20%	$5,665
	Total price for 25,000 pounds	$33,990

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