Question

utstesing al costing and ABC results, Wirway under the propone Est cent. Prepare all of the necessary schel Ich of the two costing systems is preferable in pricing decisions AN P4-4A Benton Corporation produces two grades of non-alcoholic wine from me it buys from California growers. It produces and sells roughly 3,000,000 a low-cost, high-volume product called CoolDay. It sells this in 600,000 ton also produces and sells roughly 300,000 liters per year of a lov e product called Lite Mist. Lite Mist is sold in 1-liter bottles. Based on recent d e Day product has not been as profitable as Lite Mist. Management is consider the inexpensive CoolDay line so it can focus more attention on the Lite Lite Mist product already demands considerably more attention than the Jack Eller, president and founder of Benton, is skeptical about this idea. He that for many decades the company produced only the CoolDay line and that quite profitable. It wasn't until the company started producing the more Lite Mist wine that the profitability of CoolDay declined. Prior to the introduced Lite Mist, the company had basic equipment, simple growing and production Lite Mist produe. CoolDayna s profitabooled in the liter per quite or many president's demande can to LiteMishole and virtually no need for quality control. Because Lite Mist is bottled in 1 requires considerably more time and effort, both to bottle and to label and boste CoolDay. The company must bottle and handle 5 times as many bottles of the the same quantity as CoolDay, CoolDay requires 1 month of aging Lite Mist required CoolDay requires cleaning and inspection of equipment every 10,000 requires such maintenance every 600 liters Jack has asked the accounting department to prepare an analysis of the using the traditional costing approach and using activity-based costing. The information was collected CoolDay $0.40 $0.50 0.05 150,000 Lite Mist $1.20 090 Direct materials per liter Direct labor cost per liter Direct labor hours per liter Total direct labor hours Expected to of Costa per Product CoolDay Expected Use of cost Drivers 6.600 6.000.000 Estimated Overhead $ 145,860 395.000 Activity Cost Pools Grape processing 3.000.000 Aging Cost Drivers Cart of grapes Total months Number of bottles Number of bottles 600.000 900.000 270.000 600.000 900.000 Bottling and corking Labeling and boxing 189.000 300 Number of inspections 240,500 $1.241.660 Maintain and inspect equipment -CD. $1.251 Instructions Answer each of the following questions, (Round all calculations to three deca (a) Under traditional product costing using direct laber hours.com facturing cost per liter of both products (b) Under ABC, prepare a schedule showing the computation of the actual head rates (per cost driver). (c) Prepare a schedule assigning cach acts overhead cost pool to each product on the use of cost drivers. Include a computation of overhead cost per (d) Compute the total manufacturing cost per liter for both products under ABC

Answer 1

Benton Corporation Requirement a Overhead cost per Direct Labour hour = Estimated Overhead / Total Direct Labour hours = 1241660 / (150000 + 27000) = 7.02 Direct Material Direct Labour Overhead cost Manufacturing Cost Cool Day Lite Mist 0.4 1.2 0.5 0.9 0.351 0.632 1.251 2.732 7.02 x 0.05 = 0.351; 7.02 x 0.09 = 0.632 Requirement d Direct Material Direct Labour Overhead cost Manufacturing Cost Cool Day Lite Mist 0.4 1.2 0.5 0.9 0.241 1.726 1.14 3.83

Requirement b 22.1 Activity Pools Grape processing Aging Bottling and corking Labeling and boxing Maintain and inspect equipment Estimated Overhead 145860 396000 270000 189000 240800 1241660 Expected use of Cost Drivers 6600 6600000 900000 900000 800 Activity Based Overhead Rates per cart 0.06 per month 0.3 per bottle 0.21 per bottle 301 per inspection Cost Requirement Cool Day Activity Pools Grape processing Aging Bottling and corking Labeling and boxing Maintain and inspect equipment Expected use Activity Based of Cost Drivers Overhead Rates 6000 22.1 3000000 0.06 600000 0.3 600000 0.21 350 301 Total costs assigned Liters produced Overhead cost per liter Assigned 132600 180000 180000 126000 105350 723950 3000000 0.241 Lite Mist Activity Pools Grape processing Aging Bottling and corking Labeling and boxing Maintain and inspect equipment Expected use Activity Based of Cost Drivers Overhead Rates 600 22.1 3600000 0.06 300000 0.3 300000 0.21 450 301 Total costs assigned Liters produced Overhead cost per liter Cost Assigned 13260 216000 90000 63000 135450 517710 300000 1.726