An ice cream manufacturer, Cool Cream Inc., produces three types of ice creams, Vanilla, Chocolate Chip, and P.neapple Ginger sorbet. The ice cream is sold in quart size boxes. Direct Material and Direct Labor costs for a quart size box of these three products is given below:

The Company used to have a simple product costing system that used a single plant wide rate based on machine hours (MH):

The manufacturing overhead (MOH) for the company's production facility is $100,000.

Required:

a. Using a single plant wide overhead rate compute unit product costs for a box with one quart of Ice cream for each of the three types of Ice cream.

The company has recently implemented a more refined product costing system know as Activity Based Costing (ABC) system that identifies and measures cost of activities within the production process and then allocates them to products based on cost drivers related to each activity. The company has determined that the four main activities that affect MOH are (1) Machine related, (2) Maintenance, (3) Inventory management, (4) Other (e.g. rent, janitorial costs etc.)

Data about these activities is given below:

b. Compute the la stage allocation of MOH to activity cost pools.

It is also determined that appropriate cost drivers and related total units for each of the activities Identified above are as follows:

c. Compute Activity rates for each of the activities described above.

Product profile regarding activities associated with each product is given below

d. Determine the allocated manufacturing overhead for the three Ice creams using the cost driver rates computed in part c and the activity data given above.

e. Compute unit product costs under the ABC system using the computed results in parts b, c, and d.

Transcribed Image Text:

DM/Quart DL/Quart Vanilla $1.0 $0.12 Chocolate Chip $1.5 $0.067 Pineapple Ginger $2.0 $0.2 Machine Related Maintenance Inventory Management Other Percent of Total MOH 30% 20% 30% 20% Activity Machine Related Maintenance Inventory Management Other Cost Drivers Machine Hours (MH) Maintenance hours Number of ingredients Number of quart boxes Total units of the cost driver 100,000MH 2000 maintenance hours 20 ingredients 1,000,000 boxes Cost Driver Machine hours (MH) Maintenance hours Ingredients Boxes Vanilla 70,000 MH 400 Maintenance hours 4 500,000 Chocolate Chip 20,000 MH 400 Maintenance hours 6 450,000 Pineapple Ginger 10,000MH 1,200 Maintenance hours 10 50,000 DM/Quart DL/Quart Vanilla $1.0 $0.12 Chocolate Chip $1.5 $0.067 Pineapple Ginger $2.0 $0.2 Machine Related Maintenance Inventory Management Other Percent of Total MOH 30% 20% 30% 20% Activity Machine Related Maintenance Inventory Management Other Cost Drivers Machine Hours (MH) Maintenance hours Number of ingredients Number of quart boxes Total units of the cost driver 100,000MH 2000 maintenance hours 20 ingredients 1,000,000 boxes Cost Driver Machine hours (MH) Maintenance hours Ingredients Boxes Vanilla 70,000 MH 400 Maintenance hours 4 500,000 Chocolate Chip 20,000 MH 400 Maintenance hours 6 450,000 Pineapple Ginger 10,000MH 1,200 Maintenance hours 10 50,000

Answer rating: 100% (QA)

a Single plant wide overhead rate based on machine hours is calculated as total manufacturing overhe... View the full answer