Question
Farp Cookie Company manufactures and sells two flavors of cookies: Macaroon and Buttercream. The company uses job costing system and is considering whether to switch
Farp Cookie Company manufactures and sells two flavors of cookies: Macaroon and Buttercream. The company uses job costing system and is considering whether to switch to Activity-Based Costing (ABC) system. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available: Projected sales in units is 800,000 for Buttercream and 500,000 for Macaroon. Per unit data are as follows: For Buttercream, selling price, direct materials, and direct labor is $1, $0.2, and $0.1, respectively. For Macaroon, selling price, direct materials, and direct labor is $0.8, $0.2, and $0.04, respectively. Hours per 1000-unit batch are as follows: For Buttercream, direct labor hours, oven hours, and packaging hours are 1, 1, and 0.6 hours, respectively. For Macaroon, direct labor hours, oven hours, and packaging hours are 2, 1, and 0.5 hours, respectively. Total overhead costs ($360,000) and activity levels for the year are estimated as follows: Oven costs $210,000 with an activity level of 2,100 oven hours, and packaging costs $150,000 with an activity level of 1,000 packaging hours. In addition, the activity level of direct labor is 2,500 hours. Under the existing job costing system with direct labor hours as the overhead allocation base, what is the estimated overhead rate per direct labor hour?
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