Question
Home Cookie Company manufactures and sells three flavours of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies
Home Cookie Company manufactures and sells three flavours of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies because of the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:
Macaroon | Sugar | Buttercream | |
Projected sales in units | 500,000 | 800,000 | 600,000 |
Per Unit data: | |||
Selling price | $0.80 | $0.75 | $0.60 |
Direct materials | $0.20 | $0.15 | $0.14 |
Direct labour | $0.04 | $0.02 | $0.02 |
Overhead cost based on direct labour hours (traditional system) | $0.30 | $0.15 | $0.15 |
Hours per 1,000-unit batch: | |||
Direct labour hours | 2 | 1 | 1 |
Oven hours | 1 | 1 | 1 |
Packaging hours | 0.5 | 0.5 | 0.5 |
Total overhead costs and activity levels for the year are estimated as follows:
Activity | Overhead costs | Activity levels |
Direct labour | n/a | 2,400 hours |
Oven | $210,000 | 1,900 oven hours |
Packaging | $150,000 | 950 packaging hours |
Total overhead costs | $360,000 |
Required:
- Using the traditional (simple) costing system, determine the operating profit per unit for the sugar cookie.
- Determine the activity cost driver rate for oven costs and packaging costs.
- Using the ABC system, for the sugar cookie:
- compute the estimated overhead costs per unit.
- compute the estimated operating profit per unit.
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