Answer Questin A through C

ACCT 201-Ch 17 In-class Practices 03 Benton Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs at $8 per jug. Benton also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles at $5 per bottle. Based on recent data, the CoolDay product has not been as profitable as LiteMist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product Benton's president is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line and that it was always quite profitable. It wasn't until the company started producing the more complicated LiteMist wine that the profitability of CoolDay declined Prior to the introduction of LiteMist, the company had simple equipment, simple growing and production procedures, and virtually no need for quality control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters LiteMist requires such maintenance every The president has asked the accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity-based costing. The following information was collected. CoolDay LiteMist Direct materials per liter $0.40 $1.20 Direct labor cost per liter $0.50 $0.90 Direct labor hours per liter 0.05 0.09 Total direct labor hours 150,000 27,000 Expected Use of Cost Expected Use of Cost Drivers Estimated Per Product Activity Cost Pools Cost Drivers Overhead Drivers CoolDay LiteMist Cart of grapes Number olf bottles Number of 145,860 6,600 Grape processing Aging Bottling and 6,000 600 corking boxing inspect equipment inspections 240,800 Total months 396,000 6,600,000 3,000,000 3,600,000 270,000 900,000 600,000 300,000 189,000 900,000 600,000 300,000 450 Labeling and bottles Number of Maintain and 800 $1,241,660 Ansver each of the following questions. Round all calculation to two decimal places) (a) Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products and gross profit margin. (b) Under ABC model, compute the total manufacturing cost per liter of both products and gross profit margin. What should the company do? (c)