Question

Required information Problem 17-5A 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 Activity Overhead cost Driver Quantity Department 1 Mixing $ 4,500 Machine hours 1,500 Cooking 11,250 Machine hours 1,500 Product testing 1:12,500 Batches 600 $ 128, 250 Department 2 Machine calibration $ 250,000 Production runs 400 Labeling 12,000 Cases of output 120,000 Defects 6,000 Cases of output 120,000 $ 268,000 Support Recipe formulation $ 90,000 Focus groups 45 Heat, lights, and water 27,000 Machine hours 1,500 Materials handling 65,000 Container types 8 $ 182,000 Additional production information about its two product lines follows. Extra Fine Family Style Units produced 20,000 cases 100,000 cases Batches 200 batches 400 batches Machine hours 500 MH 1,000 MW Tocus groups 30 groups 15 groups Container types 5 containers 3 containers Production runs 200 runs 200 runs Problem 17-5A Parts 1, 2 & 3

Answer 1

Part-1

Plant wide Overhead Rate = total overhead cost/ total No.of Cases

=(128250+268000+182000)/(20000+100000)cases= 4.82 per cases

Part-2 : Computation of total Cost per Cases Using Planwide Overhead Rate ( in $)
	Extra fine	Family style
Direct materials+ direct labor	$6.00	$5.00
Overhead cost	$4.82	$4.82
manufacturing cost per case	$10.82	$9.82

Part-3(a): Computation of Gross Profit( in $)
	Extra fine	Family style
Selling price per case	$18.00	$9.00
Manufacturing cost per case	$10.82	$9.82
Gross margin(loss) per case	$7.18	-$0.82

Part-3(b), In Family Style management product Shows net Loss of $0.82 . However , Contribution per Unit is (9-5) $4 per Unit . Hence , Manaement should cotinue the same product.