Black and White chocolate, Inc. (BWI) processes cocoa. BWI buys cocoa and roasts, blends, and packages them to produce chocolate for sale. Currently the firm offers 2 chocolates in 200 grams bars.

BWI prices its chocolate at full product cost, plus a markup of 35 percent.

c

Data for the current budget (2019) include factory overhead of $780,000, which has been allocated by its current costing system on the basis of each products direct labor cost.

The budgeted direct labor cost for the current year totals $325,000. The firm budgeted $5,150,000 for purchases and use of direct materials (mostly cocoa).

These transactions were recorded during 2019:

a. Recorded $4,000 depreciation on an administrative asset.

b. Purchased cocoa: black $2'840,000, and white $172,000.

c. Purchased Other direct materials: black $2'020,000, and white $128,000.

d. Maintenance $65,000 of 1 machine for roasting, the machine were used by 6400 hrs (Black loa 5900, White 500).

e. Maintenance $130,000 of 2 machines for blending, the machines were used by 13050 hrs (Black 12050, White 1000).

f. Incurred and paid direct labor payroll costs by $300,000 for black and $25,000 for white.

g. Incurred and paid Indirect labor payroll costs by $124,500 (2 employees) for 250 purchase orders (Black 50, White 200) ; by $378,000 (7 employees) for 955 setups (Black 360, white 595); by $64,000 (1 employee) for 321 batches (Black 121, White 200); by $13,500 (.2 employee) for 1300 packaging hours (Black 1200, White 100).

h. Requisitioned $5'160,000 of direct materials from materials inventory.

i. Incurred miscellaneous selling and administrative expenses, $200,000.

j. Applied factory overhead to production on the basis of ABC method.

k. Completed goods costing $6'263,700 during the year.

l. Made sales on account in 2019 by 1'190,000 bars of Black and 105,000 bars of White. Prices per bar for 2019: Black $6.55 and White $5.87. Cost of goods sold 6'260,000.

m. Income tax $600,000

The budgeted direct costs for one bar of two of the companys products:

	Black	White
Direct Materials	$4.00	$3.50
Direct Labor	0.25	0.25
Normal mark-up percentage =	35%	over full cost

BWI's budgeted overhead cost information for 2019:

Activity	Cost Driver	Budgeted Driver Consumption	Budgeted Cost	Practical capacity	Number of
Purchasing	Purchase orders	248	$124,000	290	2.0	employees
Materials handling	Setups	960	$384,000	1200	7.0	employees
Quality control	Batches	320	$64,000	450	1.0	employee
Blending	Blending-hours	13,000	$130,000	13500	2.0	machines
Roasting	Roasting-hours	6,500	$65,000	6900	1.0	machine
Packaging	Packaging-hours	1,300	$13,000	1450	0.2	employees
TOTAL factory overhead cost			$780,000
Direct Labor Budget			$325,000
Direct materials budget			$5,150,000

Data regarding the current year's production of the two of company's products. There is no beginning or ending direct materials inventory for either of these chocotates.

	Black	White
Budgeted Sales (bars)	1,200,000	100,000
Batch size (bars)	10,000	500
Setups (batch)	3	3
Purchase order size (bars)	25,000	500
Blending time (hours per 100 bars.)	1.00	1.00
Roasting time (hours per 100 bars.)	0.50	0.50
Packaging time (hours per 100 bars.)	0.10	0.10

Required

1. Using volume based costing
a. Determine the companys predetermined overhead rate using DL cost as the single cost driver.
b. Determine the full budgeted product costs and selling prices of one bar of black and one bar of white chocolate.
2. Using an ABC approach, develop the budgeted product cost for one bar of black and one white bar. Allocate all overhead costs to the 1'200,000 bars of black and the 100,000 bars of white. Compare the results with those in requirement 1 and give your comments.
3. What are the implications of the ABC system with respect to BWIs pricing and product-mix strategies?
4. Using an ABC approach:
a. Prepare the factory Overhead allocation for 2019
b. Prepare journal entries to record the 2019 events.
c. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on April 30.
d. Prepare a statement of cost of goods manufactured and a statement of cost of goods sold.
e. Prepare the income statement for 2019
f. Determine for 2019 the activity rates based on practical capacity and the cost of idle capacity for each activity.
g. Explain the role of the information you developed for part (f) above.
h. Assume the same information used in parts (f) and (g) above, but now assume also that the costs in the purchasing activity consists entirely of the cost of 2 employees; the cost in materials handling consists entirely of the cost of 7 employees; the cost of quality control consists entirely of the cost of 1 employee; the cost of roasting 1 machine; and blending 2 machines; and the cost of packaging consists entirely of the cost of .2 employees. Based on this additional information, what can you now advise management about the utilization of capacity?