Benton Corporation produces two grades of non-alcoholic wine from grapes that it buys from California growers. It produces and sells roughly 3,756,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 751,200 5-liter jugs. Benton also produces and sells roughly 375,600 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles.
	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. The LiteMist 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 wasnt 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 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 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	LiteMist
	Direct materials per liter	$0.50	$1.50
	Direct labor cost per liter	$0.63	$1.13
	Direct labor hours per liter	0.06	0.11
	Total direct labor hours	235,126	42,323
				Expected Use of Cost Drivers	Expected Use of Cost Drivers per Product
		Estimated Overhead	Estimated Overhead
	Activity cost pools				CoolDay	LiteMist
	Grape processing	Cart of grapes	$182,617	8,263	7,512	751
	Aging	Total months	495,792	8,263,200	3,756,000	4,507,200
	Bottling and corking	Number of bottles	338,040	1,126,800	751,200	375,600
	Labeling and boxing	Number of bottles	236,628	1,126,800	751,200	375,600
	Maintain & inspect equipment	Number of inspections	301,482	1,002	438	563
			$1,554,558
Instructions
Answer each of the following questions. (Round all calculations to two decimal places.)
a. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.
	OH rate:
		Cost per liter -- Traditional costing
		CoolDay	LiteMist
	DM
	DL
	OH
	Total
b. Under ABC, prepare a schedule showing the computation of activity-based overhead rates (per cost driver).
	Activity cost pool	OH rate
	Grape processing		per cart
	Aging		per month
	Bottling and corking		per bottle
	Labeling and boxing		per bottle
	Maintain & inspect equipment		per inspection
c. 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.
		Total OH allocation
		CoolDay	LiteMist
	Grape processing
	Aging
	Bottling and corking
	Labeling and boxing
	Maintain & inspect equipment
	Total
		CoolDay	LiteMist
	OH cost per liter:
d. Compute the total manufacturing cost per liter for both products under ABC.
		Cost per liter -- ABC costing
		CoolDay	LiteMist
	DM
	DL
	OH
	Total
e. Which costing approach should Jack Eller follow? Why?