Discuss the current costing practices used by HCC to allocate overhead costs to each ofthe four products, including whether it is an appropriate costing method now that HCChas increased the number of different chocolate bars.Content

Exhibit 1: Hershee Chocolate Company: Total and Product Profitability Milk Dark White Toffee Total Chocolate Chocolate Chocolate Sales $ 87,500 $ 70,000 $ 18,000 $ 2,500 $ 178,000 Direct materials 25,000 20,800 4,320 550 50,670 Direct labour 12,000 9,600 2,160 240 24,000 Overhead @ 300% of direct labour 36,000 28.800 6.480 720 72.000 Gross profit $ 14,500 $ 10,800 $ 5,040 $ 990 $ 31,330 Exhibit 2: Direct Costs and Activity Cost Drivers Milk Dark White Toffee Total Chocolate Chocolate Chocolate Production sales volume 50,000 40,000 9,000 1,000 100,000 units Unit selling price $1.75 $1.75 $2.00 $2.50 Direct materials cost per $0.50 $0.52 $0.48 $0.55 unit Direct labour hours 0.02 per unit 0.02 per unit 0.02 per unit 0.02 per unit 2,000 hours Machine hours 0.05 per unit 0.05 per unit 0.05 per unit 0.05 per unit 5,000 hours Production runs (#) 50 50 40 10 150 runs Machine setup time per 1 1 6.5 4 production run (hours) Time to maintain product 30 30 20 20 100 hours inventory records (hours)