Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 4, Problem 5PSA

1.

To determine

To compute:Overhead cost assigned to each case of Extra fine salsa and each case of Family style salsa.

1.

Expert Solution
Check Mark

Explanation of Solution

Given below is the table for the calculation of plantwide overhead rate:

Plantwide overhead rate
Particulars Amount ($)
Total overhead costs:
Department 1 128,250
Department 2 268,000
Support 182,000
Total overhead costs ( A ) 578,250
Total units produced:
Extra fine 20,000
Family style 100,000
Total number of cases ( B ) 120,000
Plantwide overhead rate ( A ) ( B ) 4.82
Table(1)

Hence, plantwide overhead rate to be assigned to each caseof Extra fine and Family style salsa is $4.82.

2.

To determine

To compute: Total cost per case for the two products.

2.

Expert Solution
Check Mark

Explanation of Solution

Given below is the calculation of total cost per case:

Total cost per case
Particulars Extra fine ($) Family style ($)
Direct materials and direct labor 6.00 5.00
Overhead 4.82 4.82
Total cost per case 10.82 9.82
Table(2)

Hence, total cost per case of Extra fine is $10.82 and Family style is $9.82.

3.

To determine

To compute: Gross profit per case.

3.

Expert Solution
Check Mark

Explanation of Solution

Given below is the computation of gross profit per case of Extra fine and familystyle:

Gross profit per case
Particulars Extra fine ($) Family style ($)
Market price 18.00 9.00
Total cost per case 10.82 9.82
Gross profit/loss per case 7.18 (0.82)
Table(3)
  • Extra fine product is profitable for the company as it has a gross profit of $7.18 whereas Family style incurs a loss of $0.82.
  • The S Company is not advised to produce Family style if market price of the same is not increased or it is not able to lower its cost for producing Family style.

Hence,gross profit per case of extra fine is $7.18 and Gross loss per case of Family style is $ 0.82.

4.

To determine

To compute: Total cost per case using ABC.

4.

Expert Solution
Check Mark

Explanation of Solution

Given below is the calculation of total cost per case:

Total cost per case
Extra fine ($) Family ($)
Mixing:
Extra fine ( 500 MH×$3.00 per MH ) 1,500
Family style ( 1,000 MH×$3.00 per MH ) 3,000
Cooking:
Extra fine ( 500 MH×$7.50 per MH ) 3,750
Family style ( 1,000 MH×$7.50 per MH ) 7,500
Product testing:
Extra fine ( 200 batches×$187.50 per batch ) 37,500
Family style ( 400 batches×$187.50 per batch ) 75,000
Machine calibration:
Extra fine ( 200 runs×$625 per run ) 125,000
Family style ( 200 runs×$625 per run ) 125,000
Labeling:
Extra fine ( 20,000 cases×$0.10 per case ) 2,000
Family style ( 100,000 cases×$0.10 per case ) 10,000
Defects:
Extra fine ( 20,000×$0.05 per case ) 1,000
Family style ( 100,000×$0.05 per case ) 5,000
Recipe formulation:
Extra fine ( 30 groups×$2,000 per group ) 60,000
Family style ( 15 groups×$2,000 per group ) 30,000
Heat, light and water:
Extra fine ( 500 MH×$18 per MH ) 9,000
Family style ( 1,000 MH×$18 per MH ) 18,000
Materials handling
Extra fine ( 5 container types×$8,125 per type ) 40,625
Family style ( 3 container types×$8,125 per type ) 24,375
Total overhead cost by product line 280,375 297,875
Number of cases 20,000 100,000
Overhead cost per case 14.02 2.98
Direct materials and direct labor per case 6.00 5.00
Total cost per case $20.02 $7.98
Table(4)

Working note:

Given below is the calculation of activity rate:

Calculation of activity rate
Activity cost pool Budgeted cost ($) ( A ) Activity driver ( B ) Activity driver ($) ( A ) ( B )
Mixing 4,500 1,500 3.00
Cooking 11,250 1,500 7.50
Product testing 112,500 600 187.50
Machine calibration 250,000 400 625.00
Labeling 12,000 120,000 0.10
Defects 6,000 120,000 0.05
Recipe formation 90,000 45 2,000.00
Heat, lights and water 27,000 1,500 18.00
Material handling 65,000 8 8,125.00
Table(5)

Hence, total cost per case of extra fine is $20.02 and Family style is $7.98.

5.

To determine

To compute: Gross profit per case.

5.

Expert Solution
Check Mark

Explanation of Solution

Given below is the calculation of gross profit per case:

Gross profit per case
Extra fine ($) Family style ($)
Market price 18.00 9.00
Total cost per case 20.02 7.98
Gross profit/loss per case (2.02) 1.02
  • Family style product is profitable for the company as it has a gross profit of $1.02 whereas Extra fine incurs a loss of $2.02.
  • The S Company is not advised to produce Extra fine if market price of the same is not increased or it is not able to lower its cost for producing Extra fine.

Hence,gross loss per case of extra fine is $2.02 and gross profit per case of Family style is $1.02.

6.

To determine

To identify: Effect on pricing analysis if Company uses departmental rates over the plantwide overhead rate.

6.

Expert Solution
Check Mark

Explanation of Solution

  • Use of departmental rates provides differences in the departments; hence it improves the pricing analysis if the company uses departmental rates over plantwide overhead rates.
  • Plantwide overhead rate does not give accurate results when the activities in the Company are diverse in nature.
  • Activity based costing method allocates the cost of each task to all products and services.
  • It is preferable to use activity based costing in companies where more than one product is manufactured or more than one services are provided, for more accurate results.
  • Activity based costing helps in better controlling of overhead costs.

Hence, ABC helps in better decision making.

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Chapter 4 Solutions

Managerial Accounting

Ch. 4 - What is a cost object?Ch. 4 - Explain why a single plantwide overhead rate can...Ch. 4 - Why are multiple departmental overhead rates more...Ch. 4 - Prob. 9DQCh. 4 - Prob. 10DQCh. 4 - Prob. 11DQCh. 4 - Prob. 12DQCh. 4 - Prob. 13DQCh. 4 - Prob. 14DQCh. 4 - 15. What are the four activity levels associated...Ch. 4 - Prob. 16DQCh. 4 - Prob. 17DQCh. 4 - Prob. 18DQCh. 4 - Prob. 1QSCh. 4 - Prob. 2QSCh. 4 - Prob. 3QSCh. 4 - Prob. 4QSCh. 4 - Prob. 5QSCh. 4 - Prob. 6QSCh. 4 - Prob. 7QSCh. 4 - Prob. 8QSCh. 4 - Plant wide rate method P1 A manufacturer uses...Ch. 4 - Prob. 10QSCh. 4 - Prob. 11QSCh. 4 - Prob. 12QSCh. 4 - Prob. 13QSCh. 4 - Prob. 14QSCh. 4 - Prob. 15QSCh. 4 - Prob. 16QSCh. 4 - Exercise 17-17 Identifying activity levels C3...Ch. 4 - Prob. 2ECh. 4 - Exercise 17-1 Computing Plantwide overhead rates...Ch. 4 - Prob. 4ECh. 4 - Prob. 5ECh. 4 - Prob. 6ECh. 4 - Exercise 17-5 Departmental overhead rates P2 Refer...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - Prob. 10ECh. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Prob. 13ECh. 4 - Prob. 14ECh. 4 - Prob. 15ECh. 4 - Prob. 16ECh. 4 - Exerciser 17-14 Activity-based costing P3 A2...Ch. 4 - Prob. 18ECh. 4 - Problem 17-1A Comparing costs using ABC with the...Ch. 4 - Prob. 2PSACh. 4 - Prob. 3PSACh. 4 - Prob. 4PSACh. 4 - Prob. 5PSACh. 4 - Prob. 1PSBCh. 4 - Prob. 2PSBCh. 4 - Prob. 3PSBCh. 4 - Prob. 4PSBCh. 4 - Prob. 5PSBCh. 4 - Prob. 4SPCh. 4 - Prob. 1AACh. 4 - Prob. 2AACh. 4 - Prob. 3AACh. 4 - Prob. 1BTNCh. 4 - Prob. 2BTNCh. 4 - Accounting professionals who for private companies...Ch. 4 - Prob. 4BTNCh. 4 - Prob. 5BTNCh. 4 - Visit and observe the processes of three different...
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