Question

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 Process Activity Overhead cost Driver Quantity Department 1 Mixing $ 5,600 11,200 113,600 $130,400 $ 305,000 17,500 4,500 $327,000 $ 80,000 38,000 76,000 $194,000 Cooking Product testing Machine hours Machine hours Batches 2,00 2,000 80 Department 2 Machine calibration Production runs Cases of output Cases of output 40 Labeling Defects 110,000 110,00 Recipe formulation Heat, lights, and water Materials handling 80 2,000 Support Focus groups Machine hours Container types Additional production information about its two product lines follows Extra Fine Family Style 79,000 cases Units produced Batches Machine hours Focus groups Container types Production runs 31,000 cases 310 batches 800 MH 490 batches 1,200 MH 55 groups 25 groups 6 containers 220 runs 2 containers 180 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. If the market price of Extra Fine Salsa is $16 per case and the market price of Family Style Salsa is $11 per case, determine the gross profit per case for each product. 3.b. What might management conclude about the Family Style Salsa product line?

Answer 1

Sara's Salsa
1)
Plantwide overhead rate			5.92	per case
total overhead cost
Department 1				130,400
Department 2				327,000
support				194,000
total overhead cost				651,400		651,400
total cases						110,000
plantwide overhead rate			651400/110000
2)			total cost per unit
Extra fine			12.92	unit
Family style			11.92	unit
(DM+DL+OH)
3-a)
Extra fine		profit	3.08
Family style		loss	-0.92
(sales - cost)
3-b)	Eliminate Family style