Berry Good Company makes two types of energy drinks, cherry and strawberry. Basic production information follows:

Berry Good has monthly overhead of $159,670, which is divided into the following cost pools:

The company has also compiled the following information about the chosen cost drivers:

Required:
1. Suppose Berry Good used a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
2. Calculate the production cost per unit for each of Berry Good's products under a traditional costing system.
3. Calculate Berry Good's gross margin per unit for each product under the traditional costing system.
4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Berry Good wanted to implement an ABC system.
5. Assuming an ABC system, assign overhead costs to each product based on activity demands.
6. Calculate the production cost per unit for each of Berry Good's products with an ABC system.
7. Calculate Berry Good's gross margin per unit for each product under an ABC system.
8. Compare the gross margin of each product under the traditional system and ABC.

Transcribed Image Text:

Cherry Strawberry Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month $0.70 0.25 2.50 140,000 units $0.80 0.25 2.50 190,00 units Setup costs Quality control Maintenance Engineering 75,000 25,000 40,500 19,170 $159,670 Total Cherry Strawberry Total Number of setups required Number of inspections Number of machine hours Number of engineering hours 40 275 1,500 65 60 350 750 70 100 625 2,250 135