Question

Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia’s single plant has the capacity to make 93,500 packages of chocolate annually. Currently, Mercia sells to only two customers: Vern’s Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores). Vern’s orders 52,700 packages and Mega Stores orders 18,500 packages annually. Variable manufacturing costs are $17 per package, and annual fixed manufacturing costs are $564,000.

The gourmet chocolate business has two seasons, holidays and non-holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months. Vern’s orders the same amount each month, so Vern’s orders 17,100 packages during the holidays and 35,600 packages in the non-holiday season. Mega Stores only carries Mercia’s chocolates during the holidays.

Required:

a. Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred.

Non-Holiday: per package?

Holiday: per package?

b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it.

Non-Holiday: per package?

Holiday: per package?

Answer 1