Question

3 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 Driver Machine hours Machine hours Batches Quantity 2,400 2,400 750 650 Overhead Process Activity cost Department Mixing 1 $ 6,000 Cooking 10,800 Product testing 114,000 $130,800 Department Machine 2 calibration $325,000 Labeling 18,000 Defects 6,800 $349,000 Support Recipe formulation $ 84,000 Heat, lights, and water 42,000 Materials handling 80,000 $286,000 Production runs Cases of output Cases of output 160,000 160, een Focus groups Machine hours Container types 5e 2,400 10 Additional production information about its two product lines follows. Extra Fine Fanity Style Units produced 35,000 cases 125,000 cases Batches 350 batches 400 batches Machine hours 1,000 MH 1,400 MH Focus groups 34 groups 16 groups Container 4 containers 6 containers types Production 260 runs 390 runs 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 $7 per case of Extra Fine and $6 per case of Family Style 3.a. W the market price of Extra Fine Salsa is $15 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! Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Reg 38 What might management conclude about the Family Style Salsa product line? Conclude about the Family Style Salsa product line < Req3A

Answer 1

Part-1

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

=(130800+349000+206000)/(35000+125000)cases= $4.29 per cases

Part-2 : Computation of total Cost per Cases Using Planwide Overhead Rate ( in $)
	Extra fine	Family style
Direct materials & direct labor	$7.00	$6.00
Overhead cost	$4.29	$4.29
manufacturing cost per case	$11.29	$10.29

Part-3(a): Computation of Gross Profit( in $)
	Extra fine	Family style
Selling price per case	15.00	10.00
Manufacturing cost per case	11.29	10.29
Gross margin(loss) per case	3.71	(0.29)

Part-3(b), In Family Style management product Shows net Loss of $0.29 . However , Contribution per Unit is (10-6) $4 per Unit . Hence , Manaement should cotinue the same product.