Almonds R Us (ARU) processes and sells almonds. ARU buys almonds from California and roasts, seasons, and packages them for resale. Currently the firm offers 2 different types of almonds to gourmet shops in one-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process.

ARU prices its nuts at full product cost, including allocated overhead, plus a markup of 30%.

Data for the current budget include factory overhead of $3,110,000, which has been allocated by its current costing system on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchases and use of direct materials (mostly raw almonds).

The budgeted direct costs for one-pound bags of two of the company's almond products are as follows:

Salted

Sugar Roasted

Direct materials

$4.20

$3.15

Direct labor

0.40

0.30

Analysis of the current year's budgeted factory overhead costs is as follows:

Activity

Cost Driver

Budgeted Activity

Budgeted Cost

Purchasing

Purchase orders

1,158

$579,000

Materials handling

Setups

1,764

739,557

Quality control

Batches

720

195,840

Roasting

Roasting-hours

96,000

960,000

Seasoning

Seasoning-hours

33,630

326,203

Packaging

Packaging-hours

26,000

309,400

Total factory overhead cost

$3,110,000

Data regarding the current year's production of two of its lines, Saltedand Sugar Roasted, follow. There is no beginning or ending direct materials inventory for either of these nut styles.

Salted

Sugar Roasted

Budgeted sales

100,000 pounds

2,000 pounds

Batch size

10,000 pounds

500 pounds

Setups

3 per batch

3 per batch

Purchase order size

25,000 pounds

500 pounds

Roasting time

1 hour per 100 pounds

1 hour per 100 pounds

Seasoning time

0.5 hour per 100 pounds

0.5 hour per 100 pounds

Packaging time

0.1 hour per 100 pounds

0.1 hour per 100 pounds

1. Using ARU's current product costing system,
2. Determine the company'spredetermined overhead rateusing direct labor cost as the single cost driver.
3. Determine the full product costs and selling prices of one pound of Saltedalmonds and one pound of Sugar Roasted almonds.
4. Using an activity-based costing approach, develop anew product cost for one pound of Salted almonds and one pound of Sugar Roasted almonds. Allocate all overhead costs to the 100,000 pounds of Salted and the 2,000 pounds of Sugar Roasted.