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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 20 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 $5,615,050, allocated on the basis of each product’s direct labor cost. The annual budgeted direct labor cost totals $1,250,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,021,000 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 Budgeted Cost Cost/Activity driver Activity Purchasing Purchase orders 11,420 $1,153,420 $101 Material handling Number of setups 1,840 1,545,600 $840 Quality control Number of batches 600 288,000 480 Roasting Roasting hours 95,560 1,624,520 17 Seasoning Seasoning hours 33,160 563,720 17 Packaging Packaging hours 25,870 439,790 17    Total manufacturing overhead cost $5,615,050 Items of costs Cashews Chestnuts Total Raw materials4.20:3.22 5106226 3914774 9021000 Direct labour1:1 625000 625000 1250000 MOH: Purchasing2500:50 1130804 22616 1153420 Material handling -10000/4:500/4ie. 2500:125 1472000 73600 1545600 Quality Control2500:125 274286 13714 288000 Roasting 1587515 37005 1624520 seasoning 550879 12841 563720 Packaging 429772 10018 439790 Total MOH Costs 5445256 169794 5615050 Total   Costs 11176482 4709568 15886050 Sales lb 128700 3000 Cost per lb 86.84 1569.86 Mark-up 40% on cost 34.74 627.94 Selling price per Lb 121.58 2197.80

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