Hickory Grill Company manufactures two types of cooking grills: The Gas Cooker and the Charcoal Smoker. The Cooker is a premium product sold to upscale outdoor shops; the Smoker is sold at major discount stores. Following information is pertaining to the manufacturing costs for the month of January:

Gas Cooker Charcoal Smoker

Units 2,000 8,000

Number of batches 50 20

Number of batch moves 180 100

Direct materials $72,000 $128,000

Direct Labor $44,000 $56,000

Details of manufacturing overhead for the month of January consisted of:

Activity Cost Cost Driver

Materials acquisition& inspection $70,000 Direct materials cost

Materials movement 19,600 Number of batch moves

Scheduling 43,400 Number of batch

$133,000

In addition, the facility level costs (plant maintenance, rent and supervisory salaries) for the month was $17,000.

A.Assuming that all the manufacturing overhead, using the conventional method, is assigned on the basis of number of units produced. For the month of January, what is the total cost of manufacturing the Gas Cooker? And the Charcoal Smoker?

B.Assuming that all manufacturing overhead is assigned on the basis of activity-based costing. For the month of January, what is the total cost of manufacturing the Gas Cooker? And the Charcoal Smoker? The controller has suggested that the facility-level costs can still be allocated using the number of units produced.

C.What is the per unit cost of Gas Cooker and Charcoal Smoker under the conventional and the activity-based costing method? Explain why the per unit cost changed under the two costing methods. Which method will you recommend to the management of Hickory Grill Company?

D.Hickory Farm operates in a competitive market and prices its product with a 25% markup over cost, determined using the conventional method. Assuming that the Hickory is still operating within the relevant range, what will be the impact of selling additional 1,000 units of Gas Cooker on the overall profitability of the company?

E.During the month of January, Hickory Farms produced 2,000 Gas Cooker and 8,000 Charcoal Smokers, as scheduled. Though all Gas Cookers were sold 3,000 of the Charcoal Smokers were still held in Inventory. Prepare a contribution margin and full absorption Income Statement for the month of January.

F.After examining data for the previous month, Hickory Farm budgeted production of 4,000 Gas Cookers and 4,000 Charcoal Smokers for the month of February. The plant manager, Bill Gross, informed you that only the facility level costs are fixed; all other costs are variable because they pay workers on an hourly basis and jobs are scheduled ahead of time

based on the budgeted production levels. He was quite confident that the budgeted production levels can be easily scheduled without any problem.

a. Assuming that the wage rates have not changed for February, prepare a contribution margin and full absorption income statement for the month of

February if all the Gas Cookers are sold, and 3,000 Charcoal Smokers still remain.

b. What would you recommend Hickory Grill Company to do to improve its

profitability?