Question 2 Waterway's 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. Waterway's Nut House currently offers 15 different types of nuts in one-pound bags through catalogs and gourmet shops. The company's 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 Waterway's nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes. Waterway's 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 $6,011,640, allocated on the basis of each product's direct labor cost. The annual budgeted direct labor cost totals $1,237,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,210,000 for the year. The unit costs of a one-pound bag of two of the company's products follows. Raw materials Direct labor Cashews Chestnuts $4.40 $3.07 0.28 0.28 Waterway's 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 Purchasing Material handling Quality control Roasting Seasoning Packaging Total manufacturing overhead cost Cost Driver Purchase orders Number of setups Number of batches Roasting hours Seasoning hours Packaging hours Budgeted Activity 11,430 1,800 590 95,510 33,410 25,900 Budgeted Cost $1,177,290 1,440,000 297,950 1,910,200 668,200 518,000 $6,011,640 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. Expected sales Batch size Setups Purchase order size Roasting time Seasoning time Packaging time Cashews 120,900 lbs. 10,000 lbs. 4 per batch 2,500 lbs. 1.00 hour/100 lbs. 0.4 hour/100 lbs. 0.1 hour/100 lbs. Chestnuts 3,000 lbs. 1,000 lbs. 4 per batch 50 lbs. 1.0 hour/100 lbs. 0.4 hour/100 lbs. 0.1 hour/100 lbs. x Your answer is incorrect. Try again. 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 o decimal places, e.g. 25% and final answers to 2 decimal places, e.g. 15.25.) Cashews Chestnuts Cost 6.04 4.71/1b. Selling Price $ 8.46 6.59/b. LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO Your answer is correct. Calculate ABC rates. Cost Pool Activity Rate Purchasing 103) /purchase order 800/setup Material handling Quality control /batch Roasting 29/roasting hour Seasoning 2 /seasoning hour Packaging /packaging hour SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO Your answer is partially correct. Try again. Using an activity-based costing approach and the information provided, calculate the cost and selling price of one pound of cashews and one pound of chestnuts. (Round all rates and final answers to 2 decmial places, e.g. 15.25.) Cashews Chestnuts 5.42||/lb. 9.42/ Ib. Cost Selling Price $C 7.597 lb. 13.19 / Ib. Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT LINK TO TEXT LINK TO VIDEO LINK TO VIDEO
