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 Department 1 Activity Mixing Cooking Product testing Driver Machine hours Machine hours Batches Quantity 2,900 2,900 500 Department 2 Machine calibration Labeling Defects Overhead cost $ 7.000 16. 200 114,500 6137, 700 6350,000 18.500 9,500 $378,000 $ 89,000 58.000 95,000 $232,000 Production runs Cases of output Cases of output 700 140,000 140,000 Support Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 2,900 Additional production information about its two product lines follows. Units produced Batches Machine hours Focus groups Container types Production runs Extra Fine 40,000 cases 400 batches 1,250 MH 32 groups 5 containers 310 runs Family Style 100,000 cases 100 batches 1, 650 MH 18 groups 5 containers 390 runs

Answer 1

Answer to Requirement 1:

Estimated overhead cost = Estimated overhead cost of Department 1 + Estimated overhead cost of Department 2 + Estimated overhead cost of Department 3
Estimated overhead cost = $137,700 + $378,000 + $232,000
Estimated overhead cost = $747,700

Plantwide overhead rate = Estimated overhead cost / Estimated cases of output
Plantwide overhead rate = $747,700 / 140,000
Plantwide overhead rate = $5.34 per case

Answer to Requirement 2:

Extra Fine:

Total cost per case = Direct materials and direct labor cost per case + Overhead cost per case
Total cost per case = $11.00 + $5.34
Total cost per case = $16.34

Family Style:

Total cost per case = Direct materials and direct labor cost per case + Overhead cost per case
Total cost per case = $7.00 + $5.34
Total cost per case = $12.34

Answer to Requirement 3-a:

Extra Fine:

Gross profit per case = Selling price per case - Total cost per case
Gross profit per case = $19.00 - $16.34
Gross profit per case = $2.66

Family Style:

Gross profit per case = Selling price per case - Total cost per case
Gross profit per case = $12.00 - $12.34
Gross profit per case = -$0.34

Answer to Requirement 3-b:

Conclude about the Family Style Salsa product line: Eliminate Family Style Salsa Product Line.