ABC and CVP Analysis: Multiple Products

Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:

	Rose	Violet
Expected sales (in cases)	53,500	10,700
Selling price per case	$99	$80
Direct labor hours	37,400	6,400
Machine hours	9,700	3,400
Receiving orders	49	22
Packing orders	103	54
Material cost per case	$52	$44
Direct labor cost per case	$12	$8

The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.

	Fixed		Variable
Direct labor benefits	$		$183,960
Machine costs	190,000*		341,640
Receiving department	248,000
Packing department	112,000
Total costs	$550,000		$525,600

2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.

Break-even cases of Rose	fill in the blank 3
Break-even cases of Violet	fill in the blank 4

Feedback

1. Remember to calculate package contribution margin per unit.

2. Benefits and Machine costs are unit based variable costs. The CVP formula will utilize three costs that utilize X1 (number of packages) X2 (receiving orders) and X3 (packing orders).