Made-Rite Foods makes several lines of sauces, including barbecue sauce and hot sauces, on a large batch basis. The products use different departments at the company, including Batch Preparation, Blending, and Bottling. The estimated costs and activity levels in each of the departments are included in the chart below.

The president, Julie Atkins, wants to look at the impact her overhead charging rates are having on product profitability. Direct labor is paid $20 per hour. To help do the analysis, she pulls together recent production information on the following products:

REQUIRED:

a. Using direct labor dollars as the driver, develop an overhead rate and then use it to charge overhead to the three batches. Do not forget to charge labor costs to each batch.

b. What is the cost per bottle made for each of the three batches?

c. Now develop four overhead rates, specifically use direct labor dollars for general overhead, ounces made for batch preparation, machine hours for blending, and bottles produced for bottling.

d. Re-cost the three batches using your four overhead rates. What does it now cost per bottle of output for each of the three products?

e. Which approach do you prefer? Why?

Transcribed Image Text:

Made-Rite Foods Preparation Blending Bottling Generd Overhead Overhead $400,000 $600,000 $1,200,000 $800,000 Direct labor hours 20,000 12,000 8,000 NA Machine hours NA NA 4,000 24,000 36,000 Ounces made 50,000,000 NA NA Bottles produced NA NA 20,000,000 NA