Sara’s Salsa Company produces its condiments in two types: Extra Fine for restau

Question

Sara’s Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company’s production support activities follow.

Additional production information about its two product lines follows.

Problem 17-5A Parts 1, 2 & 3

Required:
1. Using a plantwide overhead rate based on cases, compute the overhead cost that is assigned to each case of Extra Fine Salsa and each case of Family Style Salsa.
2. Using the plantwide overhead rate, determine the total cost per case for the two products if the direct materials and direct labor cost is $10 per case of Extra Fine and $8 per case of Family Style.
3.a. If the market price of Extra Fine Salsa is $18 per case and the market price of Family Style Salsa is $13 per case, determine the gross profit per case for each product.
3.b. What might management conclude about the Family Style Salsa product line?

5. If the market price is $18 per case of Extra Fine and $13 per case of Family Style, determine the gross profit per case for each product. (Round your intermediate calculations and final answers to 2 decimal places.)

***please be advised, there is NO PART 4 to this question. It goes from 3b, to 5.

Process Activity Overhead cost Driver Quantity Department 1 Mixing $ 4,600 Machine hours 2,700 Cooking 11,600 Machine hours 2,700 Product testing 114,300 Batches 600 $ 130,500 Department 2 Machine calibration $ 340,000 Production runs 800 Labeling 20,000 Cases of output 135,000 Defects 7,000 Cases of output 135,000 $ 367,000 Support Recipe formulation $ 87,000 Focus groups 75 Heat, lights, and water 54,000 Machine hours 2,700 Materials handling 83,000 Container types 8 $ 224,000

Explanation / Answer

1)Total cases produced : 38000+97000= 135000

Total overhead : 130500+367000+224000=721500

Predetermined overhead rate :Total overhead /Total cases

                    = : 721500/135000

               = $ 5.34 per case

Overhead assigned to Extra fine salsa : 5.34

overhead assigned to family style : $ 5.34

2)

3a)

3b)Family style salsa has a negative gross profit so it should be discontinued considering other factors

5)

382995

13

Extra Fine Family style Direct material and direct labor 10 8 overhead 5.34 5.34 Total cost per case 15.34 13.34

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