Spicy 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 its production support activities follow.

Additional production information about its two product lines follows.

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 unit for the two products if the direct materials and direct labor cost is $6 per case of Extra Fine and $5 per case of Family Style.
3. If the market price of Extra Fine Salsa is $18 per case and the market price of Family Style Salsa is $9 per case, determine the gross profit per case for each product. What might management conclude about each product line?
4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $6 per case of Extra Fine and $5 per case of Family Style.
5. If the market price is $18 per case of Extra Fine and $9 per case of Family Style, determine the gross profit per case for each product. How should management interpret the market prices given your computations?
6. Would your pricing analysis be improved if the company used departmental rates based on machine hours in department 1 and number of cases in department 2, instead of ABC?Explain.

Transcribed Image Text:

Quantity 1,500 1,500 600 Process Activity Overhead Cost Driver Departmen Miing $ 4,500 Machine hours Cooking Product testing 250 Machine hours 2500 Batches $128,250 $250,000 12,000 6,000 $268,000 Production runs Cases of output Cases of output Department 2 Machine calibration Labeling Defects 400 120,000 120,000 Recipe formulation Heat, lights, and water Materials handling Support $90,000 27,000 65,000 Focus groups Machine hours Container types 45 500 Extra Fine Family Style Units produced20,000 cases 100,000 cases Batches. Machine hours -....·.. 200 batches 500 MH 400 batches 1,000 MH 15 groups Focus groups30 groups Container types5 containers 3 containers Production runs 200 runs 200 runs