Question

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	Activity	Overhead cost			Driver	Quantity
Department 1	Mixing	$	6,000		Machine hours	2,400
	Cooking		10,800		Machine hours	2,400
	Product testing		114,000		Batches	750
		$	130,800
Department 2	Machine calibration	$	325,000		Production runs	650
	Labeling		18,000		Cases of output	160,000
	Defects		6,000		Cases of output	160,000
		$	349,000
Support	Recipe formulation	$	84,000		Focus groups	50
	Heat, lights, and water		42,000		Machine hours	2,400
	Materials handling		80,000		Container types	10
		$	206,000

Additional production information about its two product lines follows.

	Extra Fine		Family 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 types	4	containers	6	containers
Production runs	260	runs	390	runs

rev: 06_09_2018_QC_CS-128873

4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $7 per case of Extra Fine and $6 per case of Family Style. (Round your intermediate calculations to 2 decimal places. Round "Activity Rate" and "Overhead cost per unit" answers to 2 decimal places.)

Answer 1

Activity		OH	Activity	Rate	XTRA   FINE PRODUCT		FAMILY STYLE PRODUCT
					activity	OH	Activity	OH
Mixing		6000	2400	2.5	1000	2500	1400	3500
Cooking		10800	2400	4.5	1000	4500	1400	6300
Product Testing		114000	750	152	350	53200	400	60800
machin calibration		325000	650	500	260	130000	390	195000
Labelling		18000	160000	0.1125	35000	3937.5	125000	14062.5
Defects		6000	160000	0.0375	35000	1312.5	125000	4687.5
Recipe formulation		84000	50	1680	34	57120	16	26880
Heat, light and water		42000	2400	17.5	1000	17500	1400	24500
Material handling		80000	10	8000	4	32000	6	48000
				Total Overheads		302070		383730
				Divide: Units produced		35000		125000
				Cost per case		8.63		3.07
		Extra fine	Family style
Direct labor and material		7	6
OH cost per case		8.63	3.07
Total cost per case		15.63	9.07