Question

wifty’s Nut House is a processor and distributor of a variety of different nuts. The company...

wifty’s Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons, and packages them for resale. Swifty’s Nut House currently offers 15 different types of nuts in one-pound bags through catalogs and gourmet shops. The company’s major cost is that of the raw nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturing overhead cost. The company uses relatively little direct labor.

Some of Swifty’s nuts are very popular and sell in large volumes, but some of the newer types sell in very low volumes. Swifty’s prices its nuts at cost (including overhead) plus a markup of 50%. If the resulting prices of certain nuts are significantly higher than the market price, adjustments are made. Although the company competes primarily on the quality of its products, customers are price conscious.

Data for the annual budget include manufacturing overhead of $7,077,000, allocated on the basis of each product’s direct labor cost. The annual budgeted direct labor cost totals $1,769,250. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,000,000 for the year.

The unit raw material and direct labor costs of a one-pound bag of two of the company’s products follows.

Cashews

Chestnuts

Raw materials

$4.30 $3.20

Direct labor

0.30 0.30


Swifty’s controller believes that the traditional costing system may be providing misleading cost information, so she has developed the following analysis of the annual budgeted manufacturing costs.

Activity

Cost Driver

Budgeted
Activity

Budgeted Cost

Purchasing

Purchase orders 11,460 $1,146,000

Material handling

Number of setups 1,800 900,000

Quality control

Number of batches 600 360,000

Roasting

Roasting hours 96,100 2,883,000

Seasoning

Seasoning hours 33,600 1,008,000

Packaging

Packaging hours 26,000 780,000

   Total manufacturing overhead cost

$7,077,000


Data regarding the annual production of cashews and chestnuts follow. There will be no Raw Materials Inventory for either type of nuts at the beginning of the year.

Cashews

Chestnuts

Expected sales

100,000 lbs. 5,000 lbs.

Batch size

10,000 lbs. 500 lbs.

Setups

3 per batch 4 per batch

Purchase order size

2,000 lbs. 2,500 lbs.

Roasting time

1 hour/100 lbs. 2 hour/100 lbs.

Seasoning time

0.50 hour/100 lbs. 0.50 hour/100 lbs.

Packaging time

0.10 hour/100 lbs. 0.10 hour/100 lbs.

(a)

Correct answer iconYour answer is correct.

Using the current costing system, calculate the cost and selling price of one pound of cashews and one pound of chestnuts. (Round predetermined overhead rate to 0 decimal places, e.g. 25% and final answers to 2 decimal places, e.g. 15.25.)

Cashews

Chestnuts

Cost

$enter a dollar amount per pound rounded to 2 decimal places /lb. $enter a dollar amount per pound rounded to 2 decimal places /lb.

Selling Price

$enter a dollar amount per pound rounded to 2 decimal places /lb. $enter a dollar amount per pound rounded to 2 decimal places /lb.

eTextbook and Media

  

Attempts: 1 of 3 used

(b)(i)

Calculate ABC rates.

Cost Pool

Activity Rate

Purchasing

$enter a dollar amount per purchase order   /purchase order

Material handling

$enter a dollar amount per purchase order   /setup

Quality control

$enter a dollar amount per batch   /batch

Roasting

$enter a dollar amount per roasting hour   /roasting hour

Seasoning

$enter a dollar amount per seasoning hour   /seasoning hour

Packaging

$enter a dollar amount per packaging hour   /packaging hour

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