Question

PIC Question 2 (15 marks). 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 800,000 500,000 600,000 PER UNIT data: Selling price: Direct materials Direct labor $0.96- $0.24. $0.9. $0.18 $0.024. $0.72 $0.168 $0.024. I $0.048 Hours per 1000-unit batch:- Direct labor hours. Oven hours 1. 2 12 1 12 1.

Answer 1

activity-cost-driver rate = packaging overhead / packaging hours = $150,000 / 950 hours = $157.89 per packaging hour

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b. 1. To compute the estimated overhead costs for a batch of sugar cookies (using the ABC system), first calculate the activity-cost-driver rate for the oven activity. 61

activity-cost-driver rate = oven overhead / oven hours = $210,000 / 1,900 hours = $110.53 per oven hour

Then calculate the overhead for a 1,000 cookie batch by multiplying the number of activity hours per batch by the appropriate activity-cost-driver rate for each of the relevant overhead activities and sum to get the total overhead for the batch.

=(1 x $110.53) + (.5 x $157.89) = $189.48

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2. To compute the estimated operating profit for a batch of sugar cookies (using the ABC system), subtract the costs from the revenues:

Revenue Direct +Material Direct Labor +Overhead +Operating Profit=

= 1,000 * $0.75 = $ 750.00

1,000 * $.015 =$150.00)

1,000 * $.02 =($ 20.00)

$ 750.00 +($150.00) + ($ 20.00) +($189.48) = $ 390.52