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 $ 5,800 Machine hours 2,200 Cooking 12,900 Machine hours 2,200 Product testing 113,800 Batches 1,000 $ 132,500 Department 2 Machine calibration $ 315,000 Production runs 500 Labeling 20,000 Cases of output 145,000 Defects 9,000 Cases of output 145,000 $ 344,000 Support Recipe formulation $ 82,000 Focus groups 40 Heat, lights, and water 33,000 Machine hours 2,200 Materials handling 78,000 Container types 8 $ 193,000 Additional production information about its two product lines follows. Extra Fine Family Style Units produced 33,000 cases 112,000 cases Batches 330 batches 670 batches Machine hours 900 MH 1,300 MH Focus groups 30 groups 10 groups Container types 6 containers 2 containers Production runs 240 runs 260 runs 4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $9 per case of Extra Fine and $8 per case of Family Style.

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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	$	5,800		Machine hours	2,200
	Cooking		12,900		Machine hours	2,200
	Product testing		113,800		Batches	1,000
		$	132,500
Department 2	Machine calibration	$	315,000		Production runs	500
	Labeling		20,000		Cases of output	145,000
	Defects		9,000		Cases of output	145,000
		$	344,000
Support	Recipe formulation	$	82,000		Focus groups	40
	Heat, lights, and water		33,000		Machine hours	2,200
	Materials handling		78,000		Container types	8
		$	193,000

Additional production information about its two product lines follows.

	Extra Fine	Family Style
Units produced	33,000	cases	112,000	cases
Batches	330	batches	670	batches
Machine hours	900	MH	1,300	MH
Focus groups	30	groups	10	groups
Container types	6	containers	2	containers
Production runs	240	runs	260	runs

4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $9 per case of Extra Fine and $8 per case of Family Style.

Extra fine
Family Style
Overhead
Overhead
Activity Rate
Activity Drivers
Activity Drivers
assigned
assigned
Total overhead costs assigned
Extra fine
Family Style

Expert Solution

Step 1

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs based on machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are demanding the activities.