This solution has Krispy Krackle's Allocated overhead at $$40$ but $18+18+2$ is $$38,$ not $$40.$ Could you please explain? An is the allocated overhead per case found by multiplying the allocated rate per lavor hour times the labor hours per case? if it is then the allocated overhead per case should be $$44\mathrm{.}23,$ $$18\mathrm{.}95,$ and $$6\mathrm{.}32,$ please explain$9-73.$ Distortions Caused by Inappropriate Overhead Allocation Base

Chocolate Bars, Inc. $($CBI$)$ manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond

Dream, Krispy Krackle, and Creamy Crunch.

CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently

employed. In particular, management questions whether the overhead allocation base of direct labor$-$hours accurately reflects the costs

incurred during the production process of each product.

In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears

exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after

much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the

current market price.

Steve decides to hire Jean Sharpe, a management consultant, to study the firm's cost system over the next month and present her findings

and recommendations to senior management. Her objective is to identify and demonstrate how the cost accounting system might be

distorting the firm's product costs.

Jean begins her study by gathering information and documenting the existing cost accounting system. It is rather simplistic, using a single

overhead allocation base$-$direct labor$-$hours$-$to calculate and apply overhead rates to all products. The rate is calculated by summing

variable and fixed overhead costs and then dividing the result by the number of direct labor$-$hours. The product cost is determined by

multiplying the number of direct labor$-$hours required to manufacture the product by the overhead rate and adding this amount to the

direct labor and direct materials costs.

CBI engages in two distinct production processes for each product. Process $1$ is labor intensive, using a high proportion of direct

materials and labor. Process $2$ uses special packing equipment that wraps each individual candy bar and then packs it into a box of $24$

bars. The boxes are then packaged into cases, each of which has six boxes. Special packing equipment is used on all three products and

has a monthly capacity of $3,000$ cases, each containing $144$ candy bars $(-6$ boxes $24$ bars$).$

To illustrate the source of the distortions to senior management, Jean collects the cost data for the three products, Almond Dream,

Krispy Krackle, and Creamy Crunch $($see $[$ Exhibit $9\mathrm{.}21).$

Exhibit $9\mathrm{.}21$ Cost Data for Almond Dream, Krispy Krackle, and Creamy Crunch