Nancy’s Nut House is a processor and distributor of a variety of different nuts.

Question

Nancy’s Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons, and packages them for resale. Nancy’s Nut House currently offers 16 different types of nuts in one-pound bags through catalogs and gourmet shops. The company’s major cost is that of the raw nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturing overhead cost. The company uses relatively little direct labor.

Some of Nancy’s nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes. Nancy’s prices its nuts at cost (including overhead) plus a markup of 40%. If the resulting prices of certain nuts are significantly higher than the market price, adjustments are made. Although the company competes primarily on the quality of its products, customers are price conscious.

Data for the annual budget include manufacturing overhead of $5,959,850, allocated on the basis of each product’s direct labor cost. The annual budgeted direct labor cost totals $1,240,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,163,000 for the year.

The unit costs of a one-pound bag of two of the company’s products follows.

Nancy’s controller believes that the traditional costing system may be providing misleading cost information, so she has developed the following analysis of the annual budgeted manufacturing costs.

Data regarding the annual production of cashews and chestnuts follow. There will be no Raw Materials Inventory for either type of nuts at the beginning of the year.

Using an activity-based costing approach and the information provided, calculate the cost and selling price of one pound of cashews and one pound of chestnuts. (Round all rates and final answers to 2 decmial places, e.g. 15.25.)

Explanation / Answer

Activity Cost Driver Budgeted Activity Budgeted Cost Unit Cost Purchasing Purchase orders 11390 1218730 107 Material handing Number of setups 1760 1469600 835 Quality control Number of batches 600 306000 510 Roasting Roasting hours 92290 1829510 19.82 Seasoning Seasoning hours 33300 632700 19 Packaging Packaging hours 26490 503310 19 Total manufacturing overhead cost 5959850 Cashews Direct Material 4.50 Direct labor 0.30 Purchasing (124000/2500)*107)/124000 0.04 Material handing ( (124000/10000)*4*835)/124000 0.33 Quality control (124000/10000*510)/124000 0.05 Roasting ((124000/100)*1.30*19.82)/124000) 0.26 Seasoning time (124000/100)*.30*19)/124000 0.06 Packaging Time ((124000/100)*.10*19)/124000 0.02 Total Cost 5.56 markup of 40% 2.22 Selling price 7.79 Chestnuts Direct Material 3.32 Direct labor 0.3 Purchasing (2000/50)*107)/2000 2.14 Material handing ( (2000/1000)*4*835)/2000 3.34 Quality control (2000/1000*510)/2000 0.51 Roasting ((2000/100)*1.30*19.82)/2000) 0.26 Seasoning time (2000/100)*.30*19)/2000 0.06 Packaging Time ((2000/100)*.10*19)/2000 0.02 Total Cost 9.95 markup of 40% 3.98 Selling price 13.93

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.