Question

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	$	4,500		Machine hours	1,500
	Cooking		11,250		Machine hours	1,500
	Product testing		112,500		Batches	600
		$	128,250
Department 2	Machine calibration	$	250,000		Production runs	400
	Labeling		12,000		Cases of output	120,000
	Defects		6,000		Cases of output	120,000
		$	268,000
Support	Recipe formulation	$	90,000		Focus groups	45
	Heat, lights, and water		27,000		Machine hours	1,500
	Materials handling		65,000		Container types	8
		$	182,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	20,000	cases	100,000	cases
Batches	200	batches	400	batches
Machine hours	500	MH	1,000	MH
Focus groups	30	groups	15	groups
Container types	5	containers	3	containers
Production runs	200	runs	200	runs
				4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $6 per case of Extra Fine and $5 per case of Family Style. (Round your intermediate calculations to 2 decimal places. Round "Activity Rate" and "Overhead cost per unit" answers to 2 decimal places.)

Answer 1

Sara's Salsa Company Activity Mixing and cooking Production testing Machine calibration Labeling and Defects Recipe formulation Heat, light and water Materials handling Overhead Cost 15750 112500 250000 18000 90000 27000 65000 Activity Drivers 1500 Machine hours 600 Batches 400 Runs 120000 Cases 45 Groups 1500 Machine hours 8 Container Types Extra Fine Activity Rate Activity Drivers Overhead assigned 10.5 per machine hour 500 5250 187.5 per batch 200 37500 625 per run 200 125000 0.15 per case 20000 3000 2000 per group 30 60000 18 per machine hour 500 9000 8125 per type 40625 Total overhead costs assigned 280375 Total units produced 20000 Overhead cost per unit 14.02 Extra Fine Direct materials and direct labor Overhead cost per unit 14.02 Total cost/case 20.02 Family Style Activity Drivers Overhead assigned 1000 10500 400 75000 200 125000 100000 15000 30000 1000 18000 24375 Total overhead costs assigned 297875 Total units produced 100000 Overhead cost per unit 2.98 Family Style 2.98 7.98