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Item 2

Item 2 10 points

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $2 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)	$	753		$	828		$	1,128
Raw materials (per 1,000 gallons)		803			503			603

Required:

a. If the number of hours of labor per 1,000 gallons is 50 for strawberry, 62 for vanilla, and 160 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b. Charlene's department uses older, outdated machines.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	$	88,305		$	17,195
Machine-hours		25,230			36,300
Labor-hours		25,230			18,100

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, 50; vanilla, 62; and chocolate, 153. Direct labor-hours by product remain the same as in requirement (a).

A. If the number of hours of labor per 1,000 gallons is 50 for strawberry, 62 for vanilla, and 160 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

	Total Cost
Strawberry
Vanilla
Chocolate

B. 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.

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

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, 50; vanilla, 62; and chocolate, 153. Direct labor-hours by product remain the same as in requirement (a).

	Total Cost
Strawberry
Vanilla
Chocolate