Question 5 Crane 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. Crane 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 Lite Mist product already demands considerably more attention than the CoolDay line. Jack Eller, president and founder of Crane, 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 Lite Mist, 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; Lite Mist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; LiteMist 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. Direct materials per liter Direct labor cost per liter Direct labor hours per liter Total direct labor hours CoolDay $0.40 $0.50 0.07 210,000 LiteMist $1.20 $0.90 0.10 30,000 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 $146,546 673,200 289,800 222,300 243,200 $1,575,046 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. 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 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 per cart Aging per month Bottling and corking per bottle Labeling and boxing per bottle Maintain and inspect equipment per inspection 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 Cost Assigned Estimated Use of Cost Drivers Estimated Use of ListMist Activity-Based Overhead Rates Activity Cost Pool Cost Assigned Grape processing Aging A Bottling and corking Labeling and boxing Maintain and inspect equipment Overhead costs assigned Liters produced Overhead cost per liter Compute the total manufacturing cost per liter for both products under ABC. (Round overhead cost per liter to 3 decimal places, e.g. 1.225.) CoolDay LiteMist Manufacturing cost per liter Click if you would like to Show Work for this question: Open Show Work