Question
Concord's Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons,
Concord's Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons, and packages them for resale. Concord's Nut House currently offers 20 different types of nuts in one-pound bags through catalogs and gourmet shops. The company's major cost is that of the raw nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturing overhead cost. The company uses relatively little direct labor.
Some of Concord's nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes. Concord's prices its nuts at cost (including overhead) plus a markup of 40%. If the resulting prices of certain nuts are significantly higher than the market price, adjustments are made. Although the company competes primarily on the quality of its products, customers are price conscious.
Data for the annual budget include manufacturing overhead of $5,980,820, allocated on the basis of each product's direct labor cost. The annual budgeted direct labor cost totals $1,203,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,143,000 for the year.
The unit costs of a one-pound bag of two of the company's products follows.
CashewsChestnutsRaw materials$4.30$3.23Direct labor0.240.24
Concord's controller believes that the traditional costing system may be providing misleading cost information, so she has developed the following analysis of the annual budgeted manufacturing costs.
ActivityCost DriverBudgeted
ActivityBudgeted CostPurchasingPurchase orders11,410$1,163,820Material handlingNumber of setups1,8401,407,600Quality controlNumber of batches620310,000RoastingRoasting hours95,5701,911,400SeasoningSeasoning hours33,080661,600PackagingPackaging hours26,320526,400Total manufacturing overhead cost$5,980,820
Data regarding the annual production of cashews and chestnuts follow. All raw materials purchased during the period are processed and all nuts produced are sold within the period.
CashewsChestnutsExpected sales122,200lbs.2,000lbs.Batch size10,000lbs.1,000lbs.Setups2per batch2per batchPurchase order size2,500lbs.50lbs.Roasting time1.40hour/100lbs.1.4hour/100lbs.Seasoning time0.3hour/100lbs.0.3hour/100lbs.Packaging time0.2hour/100lbs.0.2hour/100lbs.
1). Using the current costing system, calculate the cost and selling price of one pound of cashews and one pound of chestnuts.(Round predetermined overhead rate to 0 decimal places, e.g. 25% and final answers to 2 decimal places, e.g. 15.25.)
2).Calculate ABC rates.
3). Using an activity-based costing approach and the information provided, calculate the cost and selling price of one pound of cashews and one pound of chestnuts.(Round all rates and final answers to 2 decmial places, e.g. 15.25.)
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