Question

Required information (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 1,000 Department 2 Machine calibration Labeling Defects Overhead cost $ 5,100 10,800 113,100 $ 129,000 $ 280,000 10,000 4,500 $ 294,500 $ 96,000 33,000 71,000 $ 200,000 Production runs Cases of output Cases of output 700 145,000 145,000 Support Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 75 1,500 8 Additional production information about its two product lines follows. Units produced Batches Machine hours Focus groups Container types Production runs Extra Fine 26,000 cases 260 batches 550 MH 50 groups 5 containers 260 runs Family Style 119,000 cases 740 batches 950 MH 25 groups 3 containers 440 runs Required: 1. Using a plantwide overhead rate based on cases, compute the overhead cost that is assigned to each case of Extra Fine Salsa and each case of Family Style Salsa. 2. Using the plantwide overhead rate, determine the total cost per case for the two products if the direct materials and direct labor cost is $9 per case of Extra Fine and $6 per case of Family Style. 3.a. If the market price of Extra Fine Salsa is $18 per case and the market price of Family Style Salsa is $10 per case, determine the gross profit per case for each product. 3.b. What might management conclude about the Family Style Salsa product line?

Answer 1

Requirement 1 Plantwide Overhead rate per case : Total Overhead Cost : Dept 1 Dept 2 Support Total Overhead Cost (A) Total no of units produced (B) $ $ $ $ 129,000 294,500 200,000 623,500 145000 Cases Plantwide Overhead rate per case (A/B) 4.30 Per Case Extra Fine Family Style $ $ 4.30 Per Case 4.30 Per Case Requirement 2 Direct materials and labour Overhead cost Extra Fine $ $ Family Style 9.00 $ 6.00 4.30 $ 4.30 Total cost per unit $ $ 13.30 $ 10.30 Requirement 3.1 Sales Less : Total Cost Gross profit Extra Fine $ $ $ Family Style 18.00 $ 10.00 (13.30 $ (10.30 4.70 $ (0.30) Requirement 3.2 Eliminating Family Style Note : Comment down for any issues