Question

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 Department 1 Activity Mixing Cooking Product testing Driver Machine hours Machine hours Batches Quantity 1,500 1,500 600 Department 2 Machine calibration Labeling Defects Overhead cost $ 4,500 11,250 112,500 $ 128, 250 $ 250,000 12,000 6,000 $ 268,000 $ 90,000 27,000 65,000 $ 182,000 Production runs Cases of output Cases of output 400 120,000 120,000 Support Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 45 1,500 8

Answer 1

Answer-

Table showing the cost per unit of Extra Fine and Family Style under ABC method

Activity	Overhead cost	Driver	Quantity	Cost per driver
Mixing	4,500	Machine hours	1500	3
Cooking	11,250	Machine hours	1,500	7.5
Product testing	112,500	Batches	600	187.5
Machine calibration	250,000	Production runs	400	625
Labelling	12,000	Cases of output	120000	0.1
Defects	6,000	Cases of output	120000	0.05
Recipe formulation	90,000	Focus groups	45	2000
Heat lighting and water	27,000	Machine hours	1500	18
Material handling	65,000	Container types	8	8125

Table showing assigning of overhead costs

Activity	Quantity per driver		Overhead costs
	Extra Fine	Family Style	Cost per driver	Extra Fine	Family Style
Mixing	500	1000	3	1500	3000
Cooking	500	1000	7.5	3750	7500
Product testing	200	400	187.5	37500	75000
Machine calibration	200	200	625	125000	125000
Labelling	20000	100000	0.1	2000	10000
Defects	20000	100000	0.05	1000	5000
Recipe formulation	30	15	2000	60000	30000
Heat lighting and water	500	1000	18	9000	18000
Material handling	5	3	8125	40625	24375
Total				280375	297875
Number of units				20000	100000
Overhead cost per unit				14.02	2.98

Table showing cost per unit

	Extra Fine	Family Style
Direct material and direct labour	$6	$5
Overhead	$14.02	$2.98
Total	$20.02	$7.98

5.

Table showing gross profit per unit

	Extra Fine	Family Style
Market price	$18	$9
Cost	$20.02	$7.98
Gross profit/(Loss)	($2.02)	$1.02