Question
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
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 $3,100,500, 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
$4.10
$3.20
Direct labor
0.35
0.35
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
1,765
738,600
Quality control
Batches
720
195,840
Roasting
Roasting-hours
96,116
961,160
Seasoning
Seasoning-hours
33,600
316,500
Packaging
Packaging-hours
26,000
309,400
Total factory overhead cost
$3,100,500
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
20,000 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
- Using ARU's current product costing system,
- Determine the company'spredetermined overhead rateusing direct labor cost as the single cost driver.
- Determine thefull product costs and selling prices of one pound of Saltedalmonds and one pound of Sugar Roasted almonds.
- Using an activity-based costing approach, develop anew product cost for one pound of Saltedalmonds and one pound of Sugar Roasted almonds. Allocate all overhead costs to the 100,000 pounds of Saltedand the 2,000 pounds of Sugar Roasted.
PLEASE INCLUDE FORMULAS
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