Required:

You are Cindy, completing the analysis and developing a final report to Alan, president of BBCC. The report should analyze BBCC's current cost allocations and give advice for the future. It should be formatted as a memo and include the following:

1. Revised20X7incomestatement(7marks)

a)Manufacturing overhead allocation(2 marks)

BBCC has adopted a normal costing approach with manufacturing overhead costs allocated based on direct labour hours. However, the actual cost of product manufactured report inExhibit 3in the Project Details document appears to have included an allocation of actual manufacturing overhead based on a percentage of sales. Revise this report so the normal costing approach adopted by the company is properly reflected.

b)Income statement results(5 marks)

Prepare revised 20X7 actual income statement (Exhibit 2) using the cost of goods manufactured in part (a) and adjusting for over- or underapplied overhead. It is the company's policy to write off any total over- or underapplied overhead to the total cost of goods sold rather than individual products during the period in which it is incurred. Comment on the change in gross margin overall, and for each product individually, as a result of the changes applied. The finished product beginning and ending inventory for all three products is as follows:

The-Bar

Beginning inventory $17,561

Ending inventory $18,292

Alamonde

Beginning inventory $10,702

Ending inventory $ 10,497

Salt-Lick

Beginning inventory $0

Ending inventory $0

In order to properly analyze the financial statements, the following information is also provided: Exhibit 3 Actual cost of product manufactured For the year ended December 31, 20X7 The-Bar Alamonde Salt-Lick Total Direct ingredients used $ 333,507 $ 232,724 $ 129,948 696, 179 Direct labour 135,876 123,926 70,338 330, 140 Manufacturing overhead 476,954 367,795 247,901 1,092,650 Total manufacturing costs $ 946,337 $ 724,445 $ 448, 187 $ 2, 1 18,969 Add: beginning work-in-process 1, 196 837 2,033 Deduct: ending work-in-process (1,207) (815) (2,022) Cost of goods manufactured $ 946,326 $ 724,467 $ 448,187 $ 2, 118,980 Budgeted cost of product manufactured For the year ended December 31, 20X7 The-Bar Alamonde Salt-Lick Total Direct ingredients used $ 330,271 $ 231,514 $ 128,694 $ 690,479 Direct labour 147,744 101,736 57,996 307,476 Manufacturing overhead 518,685 357,165 203,607 1,079,457 Total manufacturing costs $ 996,700 $ 690,415 $ 390,297 $ 2,077,412 Add: beginning work-in-process 2,991 2,094 5,085 Deduct: ending work-in-process (2,885) (1,949) (4,834) Cost of good manufactured $ 996,806 $ 690,560 $ 390,297 $ 2,077,663Exhibit 2 Volume Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % Volumes Sales Cost of goods sold Gross margin Selling and administrative expenses Operating income Gross margin % Actual operating income statement For the year ended December 31 , 20X? The-Bar 776,000 Per bar $1,164,000 $1.50 945,595 $ 218,405 18.8% Alamonde 528,000 $ 897,600 724,672 $ 172,928 19.3% Per bar $1.70 Salt-Lick 302,500 $ 605,000 448,1 87 $156,813 25.9% Budgeted operating income statement For the year ended December 31 , 20X? The-Bar 774,400 $ 1 , 1 61 .600 996,034 $ 165,566 14.3% Per bar $1.50 Alamonde 529,1 00 $ 952,380 690,756 $ 261,624 27.5% Per bar $1.80 Salt-Lick 301 ,400 $ 602,800 M $212,503 35.2% Per bar $2.00 Per bar $2.00 Total 1,606,500 $2,666,600 2 118 454 $ 548,146 541 681 w 20.6% Total 1,604,900 $2,716,780 2,077,087 $ 639,693 542,554 97,139 23.5% Actual direct labour For the year ended December 31, 20X7 The-Bar Alamonde Salt-Lick Total Direct labour hours 4, 105 3,744 2, 125 9,974 Cost per direct labour hour 33.10 33. 10 $ 33.10 33.10 Total actual direct labour costs $ 135,876 $ 123,926 70,338 $ 330, 140Budgeted direct labour For the year ended December 31 , 20x7 The-Bar Alamonde Salt-Lick Total Direct labour hours 4,560 3,140 1,790 9,490 Cost per labour hour 6 32.40 5 32.40 5 32.40 32.40 Total budgeted direct labour cost $ 147,744 $ 101,736 $ 57,996 $ 307,476 Actual manufacturing overhead For the year ended December 31 , 20x7 Variable Plant utilities $ 103,584 Plant maintenance 89,566 $ 193,150 Fixed Quality control 5 37,500 Computer and supplies 188,000 Plant and equipment amortization 150,000 Research and development 135,000 Indirect plant salary and wages 193,000 Plant lease 196 000 899,500 Total manufacturing overhead 3 1,092,650 Budgeted manufacturing overhead For the year ended December 31, 20x7 Variable Plant utilities $ 101,876 Plant maintenance 91,081 $ 192,957 Fixed Quality control $ 39,000 Computer and supplies 189,000 Plant and equipment amortization 150,000 Research and development 120,000 Indirect plant salary and wages 192,500 Plant lease 196,000 886,500 Total manufacturing overhead $ 1,079,457 Predetermined overhead rate = $1 ,079,457/9,490 direct labour hours = 311374678 per direct labour hour