Saras 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.

Additional production information about its two product lines follows.

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 unit for the two products if the direct materials and direct labor cost is $6 per case of Extra Fine and $5 per case of Family Style.
3. If the market price of Extra Fine Salsa is $ 18 per case and the market price of Family Style Salsa is $9 per case, determine the gross profit per case for each product. What might management conclude about each product line?
4. Using ABC, compute the total cost per case for each product type if the direct labor and direct materials cost is $6 per case of Extra Fine and $5 per case of Family Style.
5. If the market price is $18 per case of Extra Fine and $9 per case of Family Style, determine the gross profit per case for each product. How should management interpret the market prices given your computations?
6. Would your pricing analysis be improved if the company used departmental rates based on machine hours in department 1 and number of cases in department 2, instead of ABC? Explain.

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Quantity 1,500 1,500 600 Process Activity Overhead Cost Driver 4,500 Machine hours 11,250 Machine hours Department I Mixing Cooking 112,500Batches $128,250 Product testing $250000 Production runs Cases of output Department 2 Machine calibration Labeling Defects 12,000 6,000 $268,000 400 120,000 120,000 Cases of output 90,000 Focus groups 27,000 45 1,500 Support Recipe formulation Heat, lights, and water Materials handling Machine hours 65,000 Container types $182,000 Extra Fine Family Style Units produced Batches. . . . _ . . .. 20,000 cases 200 batches 100,000 cases 400 batches 1,000 MH 15 groups 3 containers 200 runs 500 MH Focus groups Container types Production runs 30 groups 5 containers 200 runs