Question

Problem 4-5A Pricing analysis with ABC and a plantwide overhead rate LO A1, A2, P1, P3 The following information applies to the questions displayed below) Sara's Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company's production support activities follow. Process Department 1 Activity Mixing Cooking Product testing Quantity 2,500 2,500 500 Department 2 Machine calibration Labeling Defects Overhead cost Driver $ 6,100 Machine hours 10,900 Machine hours 114, 100 Batches $131, 100 $330,000 Production runs 16,500 cases of output 9,000 cases of output $355,500 $ 85,000 Focus groups 43,000 81,000 Container types 600 1 70,000 170,000 Support 85 Recipe formulation Heat, lights, and water terials handling Machine hours 2,500 10 $209,000 Additional production information about its two product lines follows. Units produced Batches Machine hours Focus groups Container types Extra Fine 36,000 cases 360 batches 1,050 MH 60 groups 8 containers Family Style 134,000 cases 140 batches 1,450 MH 25 groups 2 containers

Answer 1

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Sara's Salsa	Answer 1
Calculation of ABC rates for overhead			A	B	C=B/A
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Department-1	Miixing	Machine hours	6,100.00	2,500.00	2.44
	Cooking	Machine hours	10,900.00	2,500.00	4.36
	Prodcut Testing	Batches	114,100.00	500.00	228.20
	Total Cost assigned		131,100.00
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Department-2	Machine Calibration	Production runs	330,000.00	600.00	550.00
	Labelling	Cases of output	16,500.00	170,000.00	0.10
	Defects	Cases of output	9,000.00	170,000.00	0.05
	Total Cost assigned		355,500.00
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Support	Recipe Formulation	Focus groups	85,000.00	85.00	1,000.00
	Heat, lights and water	Machine hours	43,000.00	2,500.00	17.20
	Materialas Hnadling	Container Types	81,000.00	10.00	8,100.00
	Total Cost assigned		209,000.00

			See C	D	D=C*D	E	F=C*E
	Allocation table			Extra Fine	Family Style
Process	Activity cost pool	Cost Driver	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned
Department-1	Miixing	Machine hours	2.44	1,050.00	2,562.00	1,450.00	3,538.00
	Cooking	Machine hours	4.36	1,050.00	4,578.00	1,450.00	6,322.00
	Prodcut Testing	Batches	228.20	360.00	82,152.00	140.00	31,948.00
Department-2	Machine Calibration	Production runs	550.00	270.00	148,500.00	330.00	181,500.00
	Labelling	Cases of output	0.10	36,000.00	3,494.12	134,000.00	13,005.88
	Defects	Cases of output	0.05	36,000.00	1,905.88	134,000.00	7,094.12
Support	Recipe Formulation	Focus groups	1,000.00	60.00	60,000.00	25.00	25,000.00
	Heat, lights and water	Machine hours	17.20	1,050.00	18,060.00	1,450.00	24,940.00
	Materialas Hnadling	Container Types	8,100.00	8.00	64,800.00	2.00	16,200.00
	Total Cost assigned				386,052.00		309,548.00	G
	Number of cases produced				36,000.00		134,000.00	H
	Overhead cost per cases produced				10.72		2.31	I=G/H

Answer 4		Extra Fine	Family Style	Note
	Direct material & Direct labor	8.00	7.00	J
	OH cost per case	10.72	2.31	See I
	Total cost per unit	18.72	9.31	K=J+I