ACC 225 Group Project Chapter 5 Baker's Delight (BD) has been in the food processing business for three years. For its first two years (2014 and 2015), it's sole product was raisin cake. All cakes were manufactured and packaged in one-pound units. BD used a normal costing system. The two direct-cost categories were direct materials and direct manufacturing labor. The sole indirect manufacturing cost category- manufacturing overhead- was allocated to products using units(pounds) of production as the allocation base. In it's third year (2016), BD added a second product-layered carrot cake- which was packaged using one-pound units. This product differs from raisin cake in several ways: - More expensive ingredients. - More direct manufacturing labor time is required - More complex manufacturing processing is required. In 2016, BD continued to use its existing costing system, in which it allocated manufacturing overhead using total units produced of rasin and layered carrot cakes. (The rate was computed based on budgeted pounds of cake to be produced). Direct materials costs in 2016 were $0.60 per pound of raisin cake and $0.90 per pound of layered carrot cake. Direct manufacturing labor in 2016 was $0.14 per pound of rasin cake and $0.20 per pound of layered carrot cake. During 2016, BD sales staff reported greater than expected sales of layered carrot cake and less than expected sales rasin cake. The budgeted and actual sales volume for 2016 is as follows: Budgeted Actual Raisin Cake 160,000 Pounds 120,000 Pounds 40,000 Pounds 80,000 Pounds Layered carrot cake During 2016 budgeted manufactured overhead was $311,000 At the end of 2016, Jonathan Davis, the controller of BD, decided to investigate how an activity based costing system would affect the product cost numbers. After consultation with operating personnel, the single manufacturing overhead cost pool was subdivided into five activity areas Activity Cost Allocation Base Budgeted Cost Budgeted Activity 65,000 Labor-hours 1,300,000 Labor-hours Mixing 500,000 Oven-hours 75,000 Cooking Oven-hours 16,000 800,000 Cool room-hours Cooling Cool room-hours 75,000 300,000 Machine hours Creaming/icing Machine-hours 80,000 Machine Hours 1,000,000 Machine Hours Packaging 311,000 Data regarding 2016 manufacture of raisin cake and layered carrot cake is as follows. Assume that there were no beginning or ending inventories of the cake. Quantity of Cost Allocation Base Layered Cost Allocation Base Raisin Cake Carrot Cake Labor-hours 600,000 640,000 Mixing Cooking Oven-hours 240,000 240,000 Cooling Cool room-hours 360,000 400,000 Creaming/icing Machine-hours 240,000 Packaging Machine Hours 360,000 560,000 Required: 1. Compute the 2016 unit-product cost (per pound) of rasin cake and layered carrot cake using the existing costing system used in 2014-2016. 2. Compute the estimated sales price per pound of rasin cake and layered carrot cake using the existing costing system. (Assume the sales price will be 30% above cost), 3. Compute the budgeted rate per cost allocation base of the 5 activity areas assuming ABC costing is implemented in 2016 4. Compute the 2016 unit product cost per pound for raisin cake and layered carrot cake using the ABC costing system. Compute the sales price 5 assuming sales is 30% above cost. 6. Explain the differences in unit product cost (per pound) computed in parts 1 and 4 7. Discuss the advantages and disadvantages of ABC costing for Bakers Delignt. Cost / unit