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 Department 1 Activity Mixing Cooking Product testing Driver Machine hours Machine ho 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 7,880 $ 274,500 91,000 28,000 66,000 85.000 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

Answer 1

1.Plantwide overhead rate = Total overheads/Total number of cases

= (127700+274500+185,000)/(21,000+109,000)

= $4.52 per unit

2.Total cost

	Extra Fine	Family Style
Direct Material and Direct Labor	4	3
Overhead	4.52	4.52
Total Cost	8.52	7.52

3AGross Profit:

	Extra Fine	Family Style
Market Price	15	6
Total Cost	8.52	7.52
Gross profit	6.48	-1.52

3B Eliminate family style, because of gross loss

Activity	Cost	Driver	Rate	Extra fine		Family style
				Driver	Overhead	Driver	Overhead
Mining and cooking	15,100	1,000	15.1	300	4,530	700	10,570
Testing	112,600	600	187.7	210	39,410	390	73,190
Calibration	255,000	500	510	210	107,100	290	147,900
Labelling and defects	19,500	130,000	0.15	21,000	3,150	109,000	16,350
Recipe	91,000	50	1820	32	58,240	18	32,760
Heat, light and water	28,000	1,000	28	300	8,400	700	19,600
Material handling	66,000	8	8250	7	57,750	1	8,250
				Total	278,580		308,620
				Per unit	13.26571		2.831376
Total cost
	Extra Fine	Family Style
Direct Material and Direct Labor	4	3
Overhead	13.26571	2.83137615
Total Cost	$17.27	$5.83
Gross Profit:
	Extra Fine	Family Style
Market Price	15	6
Total Cost	$17.27	$5.83
Gross profit	($2.27)	$0.17
	Loss	Profit