Prob 7-25 Essay

See attached excel spreadsheet for managerial accounting

Problem 7-25 (Essay) Nancy's Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world resale. Nancy's Nut House currently offers 15 different types of nuts in one-pound bags through catalogs and gourmet shops nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturi little direct labor. Some of Nancy's nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes overhead) plus a markup of 40%. If the resulting prices of certain nuts are significantly higher than the market price, adjustm 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 product's direct la totals $1,200,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected The unit costs of a one-pound bag of two of the company's products follows. Raw materials Direct labor Nancy's controller believes that the traditional costing system may be providing misleading cost information, so she has dev budgeted manufacturing costs. Activity Purchasing Material handling Quality control Roasting Seasoning Packaging Total manufacturing overhead cost Data regarding the annual production of cashews and chestnuts follow. All raw materials purchased during the period are pro the period. Expected sales Batch size Setups Purchase order size Roasting time Seasoning time Packaging time The cost and selling price of the Cashews and Chestnust is as follows for ABC. Current costing approach Cost Selling Price Activity-based costing approach Cost Selling Price (c) What action do you suggest Nancy's Nut House should take regarding cashews and chestnuts? Cashews $4.20 0.3 Chestnuts $3.20 0.3 Cost Driver Purchase orders Number of setups Budgeted Activity 11,460 Budgeted Cost $1,146,000 1,800 1,440,000 600 300,000 Roasting hours 96,100 1,922,000 Seasoning hours 33,600 672,000 Packaging hours 26,000 520,000 Number of batches $6,000,000 Cashews Chestnuts 100,000 lbs. 2,000 lbs. 10,000 lbs. 500 lbs. 3 per batch. 3 per batch. 2,500 lbs. 50 lbs. 1 hour/100 lbs. 1 hour/100 lbs. 0.5 hour/100 lbs. 0.5 hour/100 lbs. 0.1 hour/100 lbs. 0.1 hour/100 lbs. Cashews Chestnuts $6.00 / lb. $5.00 / lb. $8.40 / lb. $7.00 / lb. Cashews Chestnuts $5.15 / lb. $11.62 / lb. $7.21 / lb. $16.27 / lb