1. Coors produces two sizes of metal bearings (sold by the crate) standard and heavy. The standard bearings require $200 of direct materials per unit (per crate) and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Coors uses a single plant wide allocation rate for manufacturing overhead, based on machine hours. The direct material cost and unit price are as follows:

Per unit Standard Premium

Direct material cost $200.00 $245.00

Price per unit 350.00 370.00

Coors has been struggling financially and is looking at a number of changes including changing its method of allocating overhead.

Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown below:

Activities: Estimated Cost

Metal fabrication $420,000

Machine processing $152,000

Packaging $17,000

Total overhead cost $589,000

Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of premium bearings to be produced during the year. Additional data on a per unit basis was as given below:

Standard Premium

Kilos per unit 2.00 4.00

Machine hours per unit 80.00 60.00

Coors strategy has been to sell more of the premium product. You have been hired to analyze Coors strategy. Do you agree with their strategy? You must support your work.