Main Street Ice Cream Company uses a plantwide allocation method to allocate ove

Question

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow:

Required:

a. If the number of hours of labor per 1,000 gallons is 51 for strawberry, 56 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered:

Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each. (Round your answers to 2 decimal places.)

c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 51; vanilla, 56; and chocolate, 151. Direct labor-hours by product remain the same as in requirement (a).

Strawberry Vanilla Chocolate Direct labor (per 1,000 gallons) $ 751 $ 826 $ 1,126 Raw materials (per 1,000 gallons) 801 501 601

Explanation / Answer

a)

b)

Department SV =overhead /estimated MH

         = 100840/25210

        = $ 4PER MH

Department C :34740/18000 = $1.93 per DLH

3)

Strawberry Vanilla Chocolate Direct material 801 501 601 Direct labor 751 826    1126 overhead 153    [51*3] 168    [3*56] 300   [100*3] Total cost 1705 1495 2027

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