-Can You please answer this in the form of sentences, and add your reasoning. -T
ID: 2567882 • Letter: #
Question
-Can You please answer this in the form of sentences, and add your reasoning.
-The key is to distinguish the complexity of the two product manufacturing processes and then consider how the factory overhead is applied. You need to consider the entire production process, not just the single ingredient concept.
CP 26-2 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 800,000 cases 0,000 cases $30 30 $12 12 Storm Soda Fizz Wiz 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
Solution:
Explaining the Product Profitability Report in Light of the Additional Data:
Product Profitability Report Indicates the Two Products are Equal in terms of Profitability. The Additional Information will indicates that there will be More Activities requires for Fizz Whiz than for Storm Soda. Factory Overhead costs will be allocated on the Basis of a single Activity base. Since the Direct Labor Costs are Equal for Producing a Case of Each Product. The Factory Overhead will be Allocated to Each Case would be the Same under the Single Plantwide Factory Overhead Rate Method. An activity-based costing approach would be demonstrated that the Fizz Whiz is less profitable and the Storm Soda is more profitable than indicated by the single plantwide factory overhead rate method.
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