Question

Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia's single plant has the capacity to make 93,000 packages of chocolate annually. Currently, Mercia sells to only two customers: Vern's Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores). Vern's orders 51,600 packages and Mega Stores orders 18,000 packages annually. Variable manufacturing costs are $16 per package, and annual fixed manufacturing costs are $558,000. The gourmet chocolate business has two seasons, holidays and non-holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months. Vern's orders the same amount each month, so Vern's orders 16,800 packages during the holidays and 34,800 packages in the non-holiday season. Mega Stores only carries Mercia's chocolates during the holidays. Required: a. Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred. b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred. (Round your intermediate calculations and final answers to 2 decimal places.) Non-holiday Holiday Product Cost per package per package Required A Required B >

Answer 1

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Mercia Chocolates
Annual capacity	93,000.00
Sales in holidays
To Vern's	16,800.00
To mega	18,000.00
Sales in holidays	34,800.00
Months in holidays	4.00
Equivalent monthly sales	8,700.00
Sales in Non holidays
To Vern's	34,800.00
Sales in Non holidays	34,800.00
Months in Non holidays	8.00
Equivalent monthly sales	4,350.00
So fixed cost will be allocated in the ratio of Equivalent monthly sales in holidays and Equivalent monthly sales in non holidays.
So $ 558,000 will be allocated in the ratio of 8700:4350
Calculations are below	Holidays	Non Holidays	Total
Equivalent monthly sales	8,700.00	4,350.00	13,050.00
Allocation of $ 558,000.	372,000.00	186,000.00	558,000.00
Number of units sold	34,800.00	34,800.00
Fixed Cost per unit	10.69	5.34
Variable cost per unit	16.00	16.00
Product cost per unit	26.69	21.34
So,
Product cost for Holiday season is $ 26.69 per unit.
Product cost for Non Holiday season is $ 21.34 per unit.