Benton Corporation produces two grades of non-alcoholic 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. Benton also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called Lite Mist. Lite Mist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as Lite Mist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the Lite Mist product. The Lite Mist product already demands considerably more attention than the CoolDay line. Jack Eller, president and founder of Benton, 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 basic equipment, simple growing and production procedures, and virtually no need for quality control. Because Lite Mist 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 Lite Mist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging: Lite Mist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; Lite Mist requires such maintenance every 600 liters. Jack 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 Lite Mist Direct materials per liter $0.40 $1.20 Direct labor cost per liter $0.50 $0.90 Direct labor hours per liter 0.06 0.07 Total direct labor hours 180,000 21,000 Estimated Use of Cost Drivers per Product Activity Cost Pools Cost Drivers Estimated Overhead Estimated Use of Cost Drivers Grape processing CoolDay Lite Mist Cart of grapes $146,685 6.600 Aging 6,000 600 Total months 495,000 Bottling and corking 6,600,000 3,000,000 3,600,000 Number of bottles 309.600 900,000 600.000 Number of bottles 300,000 Labeling and boxing Maintain and inspect equipment 201,600 900,000 600,000 300,000 Number of inspections 241.600 800 350 450 $1,394,485 Are (a) Your answer is correct. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products. (Round answers to 3 decimal places, eg. 12.250.) CoolDay Lite Mist Manufacturing cost per liter 1.316 $ 2.586 Under ABC.prepare a schedule showing the computation of the activity-based overhead rates (per cost driver). (Round overhead rates to 3 decimal places, eg, 12.250.) Activity Cost Pools Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rates Grape processing 146,685 6,600 22.225 per cart Aging 495,000 6,600,000 $ 0.075 per month Bottling and corking 309.600 900.000 $ 0.344 per bottle Labeling and boxing 201,600 900,000 $ 0.224 per bottle Maintain and inspect equipment 241.600 800 302 per inspection 1,394,485 Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. Include a computation of overhead cost per liter. (Round overhead rate, cost per liter to 3 decimal places, eg. 12.250 and cost assigned to o decimal places, eg. 12,250.) CoolDay Activity Cost Pool Estimated Use of Cost Drivers Activity-Based Overhead Rates Cost Assigned Grape processing 6,000 $ 133350 $ 139350 Aging 3,000,000 $ 225000 Bottling and corking 600.000 $ 20640 Labeling and boxing 600,000 $ $ 134400 Maintain and inspect equipment 350 $ 105700 Overhead costs assigned Liters produced 3000000 Overhead cost per liter Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. Include a computation of overhead cost per liter. (Round overhead rate, cost per liter to 3 decimal places, e.g. 12.250 and cost assigned to o decimal places, eg. 12,250.) ListMist Cost Assigned Estimated Use of Cost Drivers Activity-Based Overhead Rates Cost Assigned 139350 600 $ 13335 $ 3,600,000 $ $ 270000 300,000 $ 103200 300,000 $ 67200 450 $ 135900 10 3000000 300000 e Textbook and Media Save for Later Attempts: 1 of 5 used Submit Answer Type here to search O
