Starkuchen GmbH has been in the food-processing business for three years. For its first two years (2013 and 2014), its sole product was raisin cake. All cakes were manufactured and packaged in 1 kg units. A normal costing system was used by Starkuchen. The two direct-cost categories were direct materials and direct manufacturing labour. The sole indirect manufacturing cost category - manufacturing overhead - was allocated to products using a units of production allocation base.
In its third year (2015) Starkuchen added a second product - layered carrot cake - that was packaged in 1 kg units. This product differs from raisin cake in several ways:
€¢ More expensive ingredients are used
€¢ More direct manufacturing labour time is required
€¢ More complex manufacturing is required.
In 2015, Starkuchen continued to use its existing costing system where a unit of production of either cake was weighted the same.
Direct materials costs in 2015 were ‚¬0.60 per kg of raisin cake and ‚¬0.90 per kg of layered carrot cake. Direct manufacturing labour cost in 2015 was ‚¬0.14 per kg of raisin cake and ‚¬0.20 per kg of layered carrot cake.
During 2015, Starkuchen sales people reported greater-than-expected sales of layered carrot cake and less-than-expected sales of raisin cake. The budgeted and actual sales volumes for 2015 were as follows:
Budgeted Actual
Raisin cake.....................160 000 kg........120 000 kg
Layered carrot cake............40 000 kg..........80 000 kg
The budgeted manufacturing overhead for 2015 was ‚¬210 800.
At the end of 2015, Wolfgang Iser, the accountant of Starkuchen, decided to investigate how use of an activity-based costing system would affect the product cost numbers. After consultation with operating personnel, the single manufacturing overhead cost pool was subdivided into five activity areas. These activity areas, their driver, their 2015 budgeted rate and the driver units used per kilogram of each cake are as follows:

Required
1. Calculate the 2015 unit product cost of raisin cake and layered carrot cake with the normal costing system used in the 2013 to 2014 period.
2. Calculate the 2015 unit product cost per cake under the activity-based normal costing system.
3. Explain the differences in unit product costs calculated in requirements 1 and 2.
4. Describe three uses Starkuchen might make of the activity-based cost numbers.

Transcribed Image Text:

Budgeted 2015 cost per driver unit Driver units per kg of layered carrot cake Driver units per kg of raisin cake Activity Driver 1 Mixing 2 Cooking 3 Cooling 4 Creaming/icing 5 Packaging Labour time Oven time Cool room time Machine time Machine time 0.04 0.14 0.02 0.25 0.08