Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. Th

Question

Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows: Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit. Bugaboo's budgeted overhead costs for May are: Assume that Bugaboo sells all the boxes it produces in May. Round your answers to two decimal places, if necessary. Compute Bugaboo's plantwide factory overhead rate for May. per direct labor hour Compute May's product cost for each type of cookie. Does Bugaboo's use of a plantwide factory overhead rate in any way distort May's product costs?

Explanation / Answer

Total Labour hours=80,000*0.1+60,000*.2+20,000*.5=+8,000+12,000+10,000=30,000 hours

Factory overhead rate per hour=$420,000/30,000=$14

Fluffs=80,000*$0.75+8,000*$14=$172,000

Crinkles=60,000*$0.4+12,000*$14=$192,000

Snaps=20,000*$0.3+10,000*$14=$146,000

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