Question

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow.

	Strawberry	Vanilla	Chocolate
Direct labor (per 1,000 gallons)	752	827	1127
Raw materials (per 1,000 gallons)	802	502	602

Required:

a. If the number of hours of labor per 1,000 gallons is 55 for strawberry, 60 for vanilla, and 50 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered:

	Department SV	Department C
Overhead	95,836	20,880
Machine-hours	25,220	36,200
Labor-hours	25,220	18,000

Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each.

c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 55; vanilla, 60; and chocolate, 152. Direct labor-hours by product remain the same as in requirement (a).

A)

	Total Costs
Strawberry
Vanilla
Chocolate

B)

	Allocation Rate
Department SV		per machine hour
Department C		per labor hour

C)

	Total Costs
Strawberry
Vanilla
Chocolate

Answer 1

a.

Compute total cost per 1000 gallons as follows   

Strawberry

vanilla

chocolate

Direct labor	752	827	1127
Raw materials	802	502	602
Overhead	55*3 = 165	60*3 = 180	50*3 = 150
Total cost	1719	1509	1879

Total cost = 1719+1509+1879 = 5107

b.

Compute allocate rate as follows:

	Allocation base		Allocation rate
Department SV	per machine hr	95836/25220	3.8
Department C	per labor hr	20880/18000	1.16

c.

Compute total cost as follows:

	Strawberry	vanilla	chocolate
Direct labor	752	827	1127
Raw materials	802	502	602
Overhead	55*3.8 = 209	60*3.8 = 228	152*3.8 = 577.6
Total cost	1763	1557	2306.6

Total cost = 1763+1557+2306.6= 5626.6

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