Question
Nancys Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons,
Nancys Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons, and packages them for resale. Nancys Nut House currently offers 15 different types of nuts in one-pound bags through catalogs and gourmet shops. The companys major cost is that of the raw nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturing overhead cost. The company uses relatively little direct labor. Some of Nancys nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes. Nancys prices its nuts at cost (including overhead) plus a markup of 40%. If the resulting prices of certain nuts are significantly higher than the market price, adjustments are made. Although the company competes primarily on the quality of its products, customers are price conscious. Data for the annual budget include manufacturing overhead of $6,000,000, allocated on the basis of each products direct labor cost. The annual budgeted direct labor cost totals $1,200,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,000,000 for the year. The unit costs of a one-pound bag of two of the companys products follows.
Cashews Chestnuts
Raw materials $4.20 $3.20
Direct labor 0.30 0.30
Nancys controller believes that the traditional costing system may be providing misleading cost information, so she has developed the following analysis of the annual budgeted manufacturing costs.
Activity Cost Driver Budgeted Activity Budgeted Cost
Purchasing Purchase orders 11,460 $1,146,000
Material handling Number of setups 1,800 1,440,000
Quality control Number of batches 600 300,000
Roasting Roasting hours 96,100 1,922,000
Seasoning Seasoning hours 33,600 672,000
Packaging Packaging hours 26,000 520,000
Total manufacturing overhead cost $6,000,000
Data regarding the annual production of cashews and chestnuts follow. All raw materials purchased during the period are processed and all nuts produced are sold within the period. Cashews Chestnuts
Expected sales 100,000 lbs. 2,000 lbs.
Batch size 10,000 lbs. 500 lbs.
Setups 3 per batch 3 per batch
Purchase order size 2,500 lbs . 50 lbs.
Roasting time 1 hour/100 lbs. 1 hour/100 lbs.
Seasoning time 0.5 hour/100 lbs. 0.5 hour/100 lbs.
Packaging time 0.1 hour/100 lbs. 0.1 hour/100 lbs.
Using the current costing system, calculate the cost and selling price of one pound of cashews and one pound of chestnuts. (Round predetermined overhead rate to 0 decimal places, e.g. 25% and final answers to 2 decimal places, e.g. 15.25.)
Cashews Chestnuts
Cost $ /lb. $ /lb.
Selling Price $ /lb. $ /lb.
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