Question
Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: macaroon, sugar, and buttercream. The batch size for the cookies is limited to
Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: macaroon, sugar, and buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of thProblem 1 - Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: macaroon, sugar, and buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:
| Buttercream | Macaroon | Sugar |
Projected sales in units | 500,000 | 800,000 | 600,000 |
PER UNIT data: |
|
|
|
Selling price | $0.80 | $0.75 | $0.60 |
Direct materials | $0.20 | $0.15 | $0.14 |
Direct labor | $0.04 | $0.02 | $0.02 |
Hours per 1,000-unit batch: | |||
Direct labor hours | 2 | 1 | 1 |
Oven hours | 1 | 1 | 1 |
Packaging hours | 0.5 | 0.5 | 0.5 |
Total overhead costs and activity levels for the year are estimated as follows:
Activity | Overhead costs | Activity levels |
Direct labor |
| 2,400 hours |
Oven | $120,000 | 1,900 hours |
Packaging | $150,000 | 950 hours |
Total | $270,000 |
|
Questions:
Determine the activity-cost-driver rate for packaging costs (three points).
Using the ABC system, for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).
Using the ABC system, for the sugar cookie, compute the estimated operating profit per 1,000 cookies (three points).
Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).
Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated operating profit per 1,000 cookies (3 points).
Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why? (three points).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started