Question

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream in a continuous production process. The company acquires enough raw materials and labor hours necessary for making cookies. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:

	Macaroon	Sugar	Buttercream
Projected sales in units	500,000	800,000	600,000
PER UNIT data:
Selling price	$1.12	$1.05	$0.84
Direct materials	$0.28	$0.21	$0.196
Direct labor	$0.056	$0.028	$0.028
Hours per 1000-unit batch:
Direct labor hours	2	1	1
Oven hours	1	1	1
Packaging hours	0.5	0.5	0.5

The company used traditional cost allocation method to allocate overhead costs to different types of cookies based on direct labor hours used. Recently, senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

Activity	Overhead activity costs
Oven	$210,000
Packaging	$150,000
	$360,000

The activity bases quantity of usage identified for each activity are as follows:

Activity	Key Cost Driver	Cost Driver Usage
Oven	oven hours	2,000
Packaging	packaging hours	1,000

Required:

(1) Using the ABC system, for the sugar cookie, the most popular cookie,       compute the estimated overhead costs per thousand cookies. (6 marks)

(2) Compute and compare the product cost per unit for sugar cookie under ABC method and traditional two-stage cost allocation method. (9 marks)

Answer 1

during lable Clipboard Font Alignment Number Styles Cells Filter - Select - Editing A13 fo A B D E F G H 13 14 15 16 Calculation of Packaging Hours for Sugar Cookie= Total Sugar Cookies / Cookies per production batch * Packaging Hours per production Batch 2 Total Sugar Cookies = 800,000 Cookies per production Batch = 1,000 Packaging Hours per production batch = 0.5 hour Calculation of Pacaging Hours for Sugar Cookie= 800,000 / 1,000 * 0.5 Calculation of packaging Hours for Sugar Cookie= 400 packaging hours 17 18 19 20 21 3 22 23 24 Oven Costs per cookie = Oven Costs for 800,000 cookies / 800,000 cookies Oven Costs for 800,000 cookies = $ 84,000 Oven Costs per cookie = 84,000 / 800,000 Oven Costs per cookie = $ 0.105 Oven Costs per batch = Cookies per batch * Oven Costs per cookie Cookies per production Batch = 1,000 Oven Costs per batch = 1000 * 0.105 = $ 105 25 26 27 28 Sheet 294 Sheet 295 Sheet 183 (2) Sheet 184 (2) Sheet 183 (3) Sheet 185 (2) 11096 Ready

Paste HISEN Selete TU Merge Center Format Painter Formatting Table Myles Chipboard Abonment > A D H 14 Direct Labour Hours 15 1,000 800 Formula =Total Cookies / 1000 Cookies Direct Labours per Batch 16 Macroon Sugar Buttercream Total Labour Hours 600 18 2,400 19 20 21 22 Overhead per direct labour hour = Total Indirect Costs/Total direcct labour hours Total Labour Hours 2,400 Total Indirect Costs 3,60,000 Overhead per direct labour hour = 360,000/2,400 Overhead per direct labour hour = $ 150 per labour hour 23 24 26 28 29 Overheads for each product based on labour hours 30 31 atal Overhead Totallinite Ovarbaadnar linit 22 Darticulars Sheet 294 Sheet 295 Total Labour Haure. Labour Datenar hour Sheet 183 (2) Sheet 184 (2) Sheet 183 (3) Sheet 185 (2) 1 14090 Ready

Calibri V11 A General htum- X Cut I Copy - Format Painter ab Wrap Text Merge Center BIU >> A. 0 % Invent Delete format Z Sort Find Conditional Formats Cell Formatting Table Styles Styles Clipboard 14 Font Alignment Number A B D E F H K 28 29 Overheads for each product based on labour hours 30 31 32 Particulars Total Labour Hours Labour Rate per hour Total Overhead Total Units Overhead per Unit 33 34 Sugar Cookie 800 150 1,20,000 8,00,000 0.150 35 36 37 38 39 40 41 42 43 Sheet 294 Sheet 295 Sheet 183 (2) Sheet 184 (2) Sheet 183 (3) Sheet 185 (2) + 14096 Ready