Identifying product cost distortion Beachside Beverages Company manufactures sof

Question

Identifying product cost distortion Beachside Beverages Company manufactures soft drinks. Information about two products is as follows Sales Price per Case Gross Profit per Case Volume Storm Soda Fizz Wiz 800,000 cases 10,000 cases $30 30 $12 12 It is known that both products have the same direct materials and direct labor costs per case. Beachside Beverages allocates factory overhead to products by using a single plantwide factory overhead rate, based on direct labor cost. Additional information about the two products is as follows Storm Soda: Requires minor process preparation and sterilization prior to processing. The ingredients are acquired locally. The formulation is simple, and it is easy to maintain quality. Lastly, the product is sold in large bulk (full truckload) orders. Fizz Wiz: Requires extensive process preparation and sterilization prior to processing The ingredients are from Jamaica, requiring complex import controls. The formulation is complex, and it is thus difficult to maintain quality. Lastly, the product is sold in small (less than full truckload) orders. Explain the product profitability report in light of the additional data.

Explanation / Answer

Storm Soda Fizz Wiz Total 800,000 cases 10,000 cases $ $ Total sales revenue ( $ 30 per case )                 2,40,00,000                    3,00,000        2,43,00,000 Less: Cost of goods sold ( $ 30 - $ 12 = $ 18 per case )              (1,44,00,000)                  (1,80,000)      (1,45,80,000) Gross profit ( $ 12 per case )                    96,00,000                    1,20,000            97,20,000

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