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 Lite Mist. LiteMist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as LiteMist. 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 LiteMist 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 Lite Mist 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; 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 casting. 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 CoolDayLiteMis 6,000 600 3,000,000 3,600,000 600,000 300,000 600,000 300,000 450 350 Answer each of the following questions. 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 L ite Mist Manufacturing cost per liter 1.359 2.756 SHOW SOLUTION LINK TO TEXT VIDEO: SIMILAR PROBLEM 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 146546 22.204 per cart Aging 673200 6600000 Bottling and corking 289800 900000 T J T T 0.102 per month 0.322 per bottle 0.247 per bottle 304 per inspection Labeling and boxing 222300 T 900000 800 Maintain and inspect equipment 1575046 LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM 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 0 decimal places, e.g. 12,250.) CoolDay Activity-Based Overhead Rates Estimated Use of Cost Drivers Activity Cost Pool ListMist Activity-Based Overhead Rates Estimated Use of Cost Drivers Cost Assigned Cost Assigned Grape processing 6000 22.204 133224 600 22.204 J 13322 Aging 3000000 0.102T 306000 0.102T 367200 Bottling and corking T 600000 0.322 193200 T 300000 21T 96600 Labeling and boxing T 600000 0.2471 148200 T 300000 0.2471 7 4100 Maintain and inspect equipment T 350 304 106400 450 304 136800 Overhead costs assigned 887024 688022 Liters produced 3000000 300000 Overhead cost per liter 0.2956 2.293 Your answer is correct. 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 Lite Mist Manufacturing cost per liter. 1.196 T 4.393 Click if you would like to Show Work for this question: Open Show Work