Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow:
Peanut Butter |
Cashew Butter |
Unused Capacitya |
units of Purchaseb |
|
Expected sales (in cases) | 50,000 | 10,000 | - | - |
Selling price per case | $100 | $80 | - | - |
Direct labor hours | 40,000 | 10,000 | - | As needed |
Receiving orders | 500 | 250 | 250 | 500 |
Packing orders | 1,000 | 500 | 500 | 250 |
Material cost per case | $50 | $48 | - | - |
Direct labor cost per case | $10 | $8 | - | - |
Advertising costs | $200,000 | $70,000 | - | - |
aPractical capacity less expected usage (all unused capacity is permanent). | ||||
bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. |
Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver.
Activity | Fixeda | Variableb |
Direct labor benefits | $0 | $200,000 |
Machine | 200,000 | 250,000 |
Receiving | 200,000 | 22,500 |
Packing | 100,000 | 45,000 |
Total costs | $500,000 | $517,500 |
aCosts associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. |
bThese costs are for the actual levels of the cost driver. |
Required:
1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on direct labor hours.
Nutterco, Inc. | |||
Traditional Income Statement | |||
Peanut Butter | Cashew Butter | Total | |
Revenues | $ | $ | $ |
Less variable expenses: | |||
Direct materials | |||
Direct labor | |||
Variable overhead | |||
Contribution margin | $ | $ | $ |
Less direct fixed expenses | |||
Product margin | $ | $ | $ |
Less common fixed expenses | |||
Operating income | $ |
2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin.
Nutterco, Inc. | |||
Activity-Based Income Statement | |||
Peanut Butter | Cashew Butter | Total | |
Revenues | $ | $ | $ |
Less variable costs | |||
Contribution margin | $ | $ | $ |
Less traceable expenses: | |||
Advertising | |||
Receiving | |||
Packing | |||
Product margin | $ | $ | $ |
Less unused activity expenses: | |||
Receiving | |||
Packing | |||
Common fixed expenses (machine depreciation) | |||
Operating income | $ |
Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two,...
Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter Cashew Butter Unused Capacitya units of Purchaseb Expected sales (in cases) 50,000 10,000 - - Selling price per case $100 $80 - - Direct labor hours 40,000 10,000 - As needed...
Production Budget and Direct Materials Purchases Budgets Peanut-Fresh Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows: Unit Sales Dollar Sales ($) January 48,000 100,800 February 46,000 96,600 March 55,000 121,000 April 58,000 125,200 Company policy requires that ending inventories for each month be 20% of next month's sales. At the beginning of January, the inventory of peanut butter is 14,500...
Production Budget and Direct Materials Purchases Budgets Peanut Land Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows: Unit Sales Dollar Sales ($) January 40,000 72,000 February 45,000 81,000 March 60,000 108,000 April 42,000 75,600 Company policy requires that ending inventories for each month be 20% of next month's sales. At the beginning of January, the inventory of peanut butter is...
Appropriate Transfer Prices: Opportunity Costs Plains Peanut Butter Company recently acquired a peanut-processing company that has a normal annual capacity of 4,000,000 pounds and that sold 2,800,000 pounds last year at a price of $2.00 per pound. The purpose of the acquisition is to furnish peanuts for the peanut butter plant, which needs 1,600,000 pounds of peanuts per year. It has been purchasing peanuts from suppliers at the market price. Production costs per pound of the peanut-processing company are as...
4. Gooding Foods makes Goody-Goody brand peanut butter. The cost to make each jar is $2.05 and consists of the following: Direct material Direct labor Variable overhead Fixed overhead $1.00 0.25 0.30 0.50 A grocery store chain wants to purchase a generic brand peanut butter from Gooding and is willing to pay S1.50 per jar. The generic peanut butter will be made using a different recipe, lowering the direct materials cost to $0.80 per jar. Gooding can produce this special...
An Internet food company, “Deliciousness”, will be including “Peanut Butter Brownies” in their online catalog. The Brownies will be sold in square tins and captioned with personal greetings. Jason negotiated a selling price to Deliciousness at $10 per tin. The product cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be a fixed annual...
Keep or Drop AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow: System A System B Headset Sales $45,000 $32,500 $8,000 Less: Variable expenses...
Make-or-Buy, Traditional Analysis Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Density Gauge Thickness Gauge Total Sales $ 202,500 $ 108,000 $ 310,500 Less variable expenses 108,000 62,100 170,100 Contribution margin $ 94,500 $ 45,900 $ 140,400 Less direct fixed expenses* 27,000 51,300 78,300 Segment margin $ 67,500 $ (5,400) $ 62,100 Less common fixed expenses 40,500 Operating income $ 21,600 * Includes depreciation....
CONTINUING A PRODUCT LINE Aquilino Inc. produces two types of rowing machines, the Deluxe and the Regular models. A recent segmented income statement is shown below. Regular Deluxe Total__ Sales $ 160,000 $ 240,000 $ 400,000 Less: Variable costs 120,000 160,000 280,000 Contribution margin 40,000 80,000 120,000 Less: Direct fixed costs 32,000 20,000 52,000 Segment Margin 8,000 60,000 68,000 Common fixed costs (allocated) 10,000 50,000 ...
Make-or-Buy, Traditional Analysis Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Density Gauge Thickness Gauge Total Sales $ 190,500 $ 101,600 $ 292,100 Less variable expenses 101,600 58,420 160,020 Contribution margin $ 88,900 $ 43,180 $ 132,080 Less direct fixed expenses* 25,400 48,260 73,660 Segment margin $ 63,500 $ (5,080) $ 58,420 Less common fixed expenses 38,100 Operating income $ 20,320 * Includes depreciation....