Question

Rosehut Olive Oil Company makes two grades of olive oil: standard and extra virgin. Rosehut has identified two activity cost pools, the related costs per pool, the cost driver for each pool, and the expected usage for each pool.

Activity

Total Activity Cost

Cost Driver

Standard

Extra Virgin

Washing, Pressing & Filtering (WPF)

$

1,778,400

Washing, Pressing, and Filtering hours

47,400

hours

108,600

hours

Bottling

$

931,500

Number of bottles

324,000

bottles

81,000

bottles

Additional information about each grade of olive oil is as follows:

Grade	Sales Revenue				Direct Materials Costs				Direct Labor Costs
Standard	$	5,160,000			$	900,000			$	375,000
Extra Virgin	$	2,700,000			$	600,000			$	150,000

Required:

1. Calculate the activity rate for each cost pool.

2. Using the activity rates, determine the total amount of overhead assigned to each product.

3. Determine total manufacturing cost for each product.

4. Calculate the gross profit for each product.

1. Calculate the activity rate for each cost pool. (Round your answers to 2 decimal places.)

	Activity Cost Pool Washing, Pressing & Filtering (WPF) per hour Bottling per bottle

2.Using the activity rates, determine the total amount of overhead assigned to each product. (Round activity rates to 2 decimal places.)

	Standard Extra Virgin Activity Activity Rate Activity for Standard Overhead assigned to Standard Activity for Extra Virgin Overhead assigned to Extra Virgin WPF Bottling Total

3. Determine total manufacturing cost for each product.

	Standard Extra Virgin Direct Materials Direct Labor ABC Overhead Total manufacturing costs

4. Calculate the gross profit for each product.

	Standard Extra Virgin Revenue Cost of goods sold Gross Profit

Answer 1

Requirement 1 Calculate Activity rate for each cost pool Activity Washing pressing and Filtering Bottling Total Activity Cost (A) Cost driver (B) 1,778,400.00 156000.00 Hours 931,500.00 405000.00 Bottles Activity rate (A/B) 11.40 Per Hour 2.30 Per Bottle Activity rate Requirement 2 Activity Washing,pressing and Filtering Bottling Standard Extra Virgin Activity for stand Overhead assigned Activity for Extra Virgin Overhead assigned 11.40 47400 hours $ 540,360.00 108600 Hours $ 1,238,040.00 2.30 324000 bottles $ 745,200.00 81000 Bottles $ 186,300.00 Requirement 3 Total manfacturing Cost of Each product Standard Direct Materials Direct Labour Overhead Cost 900,000.00 375,000.00 1,238,040.00 Extra Virgin $ 600,000.00 $ 150,000.00 $ 186,300.00 Total Manfacturing Cost 2,513,040.00 $ 936,300.00 Requirement 4 Revenue Cost of Goods sold Gross Profit Standard Extra Virgin 5,160,000.00 $ 2,700,000.00 (2,513,040.00) $ (936,300.00) 2,646,960.00 $ 1,763, 700.00