Question

HOW DO I CALCULATE?

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 Department 1 Activity Mixing Cooking Product testing Driver Machine hours Machine hours Batches Quantity 1,000 1,000 600 Department 2 Machine calibration Labeling Defects Overhead cost $ 4,600 10,500 112,600 $ 127,700 $ 255,000 12,500 7,000 $274,500 $ 91,000 28,000 66,000 $ 185,000 Production runs Cases of output Cases of output 500 130,000 130,000 Support Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 1,000 Additional production information about its two product lines follows. Units produced Batches Machine hours Focus groups Container types Production runs Extra Fine 21,000 cases 210 batches 300 MH 32 groups 7 containers 210 runs Family Style 109,000 cases 390 batches 700 MH 18 groups 1 containers 290 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 $4 per case of Extra Fine and $3 per case of Family Style. 3.a. If the market price of Extra Fine Salsa is $15 per case and the market price of Family Style Salsa is $6 per case, determine the gross profit per case for each product. 3.b. What might management conclude about the Family Style Salsa product line? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A Req 3B 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. (Round your intermediate calculations and final answers to 2 decimal places.) Plantwide overhead rate per case

Answer 1

1)	Plantwide overhead rate
	Estimated overhead/total cases
	587200/130000
	4.52
	plantwide overhead rate			$4.52	per case
				total cost per unit
2)	Extra Fine			8.52
	Family Style			7.52
3)	Extra Fine		profit	6.48
	Family Style		loss	-1.52
										Extra fine			Family style
			overhead	Avtivity Driver			Activity rate			Activity Drivers		overhead	Activity Drivers		overhead
4)	Activity		cost									assinged			assinged
	Mixing & cooking		15,100	1,000	machine hours		15.1	per machine hour		300		4530	700		10570
	product testing		112,600	600	Batches		187.6667	per batch		210		39410	390		73190
	Machine Calibration		255,000	500	production run		510	per production run		210		107100	290		147900
	Labeling & Defects		19,500	130,000	cases of output		0.15	per case		21000		3150	109,000		16350
	Recipe formulation		91,000	50	Focus groups		1820	per focus group		32		58240	18		32760
	heat,light and water		28,000	1,000	machine hours		28	per machine hour		300		8400	700		19600
	Material handling		66,000	8	container type		8250	per container type		7		57750	1		8250
			587,200							total OH cost assign		278580	total OH cost assign		308620
										total units produced		21,000	total units produced		109,000
										oh cost per unit		13.27	oh cost per unit		2.83
									Extra	Family
									fine	Style
						Direct materials & direct labor			4.00	3.00
						overhead			13.27	2.83
						tota cost/case			17.27	5.83
	5)	Extra Fine		loss	-2.27
		Family Style		profit	0.17