Problem 4-4A a-d (Video) (Part Level Submission) Benton Corporation produces two grades of non-alcoholic wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Benton also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. Lite Mist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as Lite Mist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product. The LiteMist product already demands considerably more attention than the CoolDay line. Jack Eller, president and founder of Benton, is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line and that it was always quite profitable. It wasn't until the company started producing the more complicated Lite Mist wine that the profitability of CoolDay declined. Prior to the introduction of LiteMist, the company had basic equipment, simple growing and production procedures, and virtually no need for quality control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of Lite Mist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; Lite Mist requires such maintenance every 600 liters. Jack has asked the accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity-based costing. The following information was collected. CoolDay $0.40 $0.50 0.04 Lite Mist $1.20 $0.90 Direct materials per liter Direct labor cost per liter Direct labor hours per liter Total direct labor hours 0.07 120,000 21,000 CoolDay $0.40 $0.50 Direct materials per liter Direct labor cost per liter Direct labor hours per liter Total direct labor hours Lite Mist $1.20 $0.90 0.07 21,000 0.04 120,000 Estimated Use of Cost Drivers per Product Activity Cost Pools Grape processing Aging Bottling and corking Labeling and boxing Maintain and inspect equipment Cost Drivers Cart of grapes Total months Number of bottles Number of bottles Number of inspections Estimated Overhead $147,022 699,600 280,800 214,200 244,800 $1,586,422 Estimated Use of Cost Drivers 6,600 6,600,000 900,000 900,000 800 CoolDay 6,000 3,000,000 600,000 600,000 350 LiteMist 600 3,600,000 300,000 300,000 450 Answer each of the following questions. v (a) Your answer is correct. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products. (Round answers to 3 decimal places, e.g. 12.250.) CoolDay Lite Mist Manufacturing cost per liter 1.350 2.888 (b) Your answer is correct. Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver). (Round overhead rates to 3 decimal places, e.g. 12.250.) Activity Cost Pools Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rates Grape processing 147022 6600 22.276 per cart Aging 699600 6600000 0.106 per month v Bottling and corking 280800 900000 0.312 per bottle Labeling and boxing 214200 900000 0.238 per bottle Maintain and inspect equipment 244800 800 306.000 per inspection 1586422 (c) Prepare a schedule assigning each activity's overhead cost pool to each product, based on the use of cost drivers. Include a computation of overhead cost per liter. (Round overhead rate, cost per liter to 3 decimal places, e.g. 12.250 and cost assigned to o decimal places, e.g. 12,250.) CoolDay Activity-Based Overhead Rates Estimated Use of Cost Drivers List Mist Activity-Based Overhead Rates Estimated Use of Cost Drivers Activity Cost Pool Cost Assigned Cost Assigned Grape processing $ $ $ $ Aging $ $ Bottling and corking $ $ Labeling and boxing $ $ II Maintain and inspect equipment $ Overhead costs assigned $ $ Liters produced Overhead cost per liter $ $