Question

Problem 17-4A Evaluating product line costs and prices using ABC LO P3

Bright Day Company produces two beverages, Hi-Voltage and EasySlim. Data about these products follow.

	Hi-Voltage		EasySlim
Production volume	11,500	bottles	270,000	bottles
Liquid materials	1,400	gallons	35,000	gallons
Dry materials	1,020	pounds	3,000	pounds
Bottles	11,500	bottles	270,000	bottles
Labels	4	labels per bottle	3	label(s) per bottle
Machine setups	1,200	setups	700	setups
Machine hours	200	MH	3,600	MH

Additional data from its two production departments follow.

Department	Driver	Cost
Mixing department
Liquid materials	Gallons	$	2,548
Dry materials	Pounds		2,010
Utilities	Machine hours		1,900
Bottling department
Bottles	Units	$	84,450
Labeling	Labels per bottle		25,680
Machine setup	Setups		38,000

Required:
1 & 2. Determine the cost of each product line using ABC. What is the cost per bottle for Hi-Voltage and EasySlim?
3. If Hi-Voltage sells for $6.35 per bottle, how much profit does the company earn per bottle of Hi-Voltage that it sells?
4. What is the minimum price that the company should set per bottle of EasySlim?

Answer 1

1 & 2.

				Hi-Voltage		EasySlim
Activity	Cost $	Driver	Activity Rate $	Driver Usage	Cost Assigned $	Driver Usage	Cost Assigned $
Mixing department
Liquid materials	2548	36400	0.07	1400	98	35000	2450
Dry materials	2010	4020	0.50	1020	510	3000	1500
Utilities	1900	3800	0.50	200	100	3600	1800
Bottling department
Bottles	84450	281500	0.30	11500	3450	270000	81000
Labeling	25680	856000	0.03	46000	1380	810000	24300
Machine setup	38000	1900	20.00	1200	24000	700	14000
Total cost of product line $					29538		125050
Number of bottles produced					11500		270000
Cost per bottle $					2.57		0.46

3.

	Hi-Voltage
Sales price per bottle	6.35
Cost per bottle	2.57
Profit per bottle $	3.78

4. Minimum price per bottle of EasySlim: $0.46