Question

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	Activity	Overhead cost			Driver	Quantity
Department 1	Mixing	$	6,000		Machine hours	2,400
	Cooking		10,800		Machine hours	2,400
	Product testing		114,000		Batches	750
		$	130,800
Department 2	Machine calibration	$	325,000		Production runs	650
	Labeling		18,000		Cases of output	160,000
	Defects		6,000		Cases of output	160,000
		$	349,000
Support	Recipe formulation	$	84,000		Focus groups	50
	Heat, lights, and water		42,000		Machine hours	2,400
	Materials handling		80,000		Container types	10
		$	206,000

Additional production information about its two product lines follows.

	Extra Fine		Family Style
Units produced	35,000	cases	125,000	cases
Batches	350	batches	400	batches
Machine hours	1,000	MH	1,400	MH
Focus groups	34	groups	16	groups
Container types	4	containers	6	containers
Production runs	260	runs	390	runs

Problem 17-5A Parts 1, 2 & 3

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 $7 per case of Extra Fine and $6 per case of Family Style.
3.a. If the market price of Extra Fine Salsa is $15 per case and the market price of Family Style Salsa is $10 per case, determine the gross profit per case for each product.
3.b. What might management conclude about the Family Style Salsa product line?

Answer 1