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Problem 17-5A Pricing analysis with ABC and a plantwide overhead rate A1 A2 P1 P3 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. Process Department 1 Activity Mixing Cooking Product testing Driver Machine hours Machine hours Batches Quantity 1,500 1,500 600 Department 2 Machine calibration Labeling Defects Overhead Cost $ 4,500 11,250 112,500 $128,250 $250,000 12,000 6,000 $268,000 $ 90,000 27,000 65,000 $182,000 Production runs Cases of output Cases of output 400 120,000 120,000 Support Recipe formulation Heat, lights, and water Materials handling Focus groups Machine hours Container types 45 1,500 8 Additional production information about its two product lines follows. Page 799 Units produced. Batches.... Machine hours Focus groups Container types Production runs Extra Fine 20,000 cases 200 batches 500 MH 30 groups 5 containers 200 runs Family Style 100,000 cases 400 batches 1,000 MH 15 groups 3 containers 200 runs 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 $6 per case of Extra Fine and $5 per case of Family Style. Check (2) Cost per case: Extra Fine, $10.82; Family Style, 59.82 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. (4) Cost per case: Extra Fine, $20.02; Family Style, $7.98 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. 1. Plantwide overhead rate per case frounded) Calculated as: Total Overhead Cost Total Volume 2. Extra Fine Family Direct materials + Direct Labor Overhead Manufacturing cost per case 3. Extra Fine Family Selling price per case Manufacturing cost per case Gross margin (loss) per case Write your analysis here: Calculated As: per MH per batch per run 4 Mixing & Cooking Product testing Machine calibration Labeling & Defects Recipe formulation Heat,light, and water Material handling per case per group per MH per type Extra Fine MH X $ Family Style MH X $ Mixing & cooking Product testing batch. X$ batch. X $ runs x 5 runs x S cases x $ cases x 5 groups x 5 MH X $ Mach calibration Labeling & defects Recipe formulation Heat, light, & water Material handling Total overhead + cases Overhead/case* Material & labor Total cost/case groups x 5 MH $ types x 5 types x $ * rounded 5 Extra Fine Family Selling price per case Manufacturing cost per case Gross margin (loss) per case Write your analysis here: 6. Write your analysis here