Your company produces a basic potato chip. There are three main processes used in the chips. The first process washes and peels the potatoes. The second process slices and fries the potatoes. The third process seasons and packages the chips. The potato chips are sold in 12 oz bags (1 bag is a unit)

Information on the direct materials is listed in table 1. Consider this information the standard.

Direct labor information given in Table 2. Consider this information the standard.

Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours. Estimated annual direct labor hours are 12,500. Calculate a predetermined OH rate (round to two decimal places if needed). Use this rate when you need to apply OH.

Table 4 gives you the information for the last two months on the overhead cost. Use this information to determine the fixed and variable portions of the cost. (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 12 minutes of total machine time for each bag of chips (or 1/5 a machine hour per bag of chips).

Table 5 is where you will list all your production cost, separated into their fixed and variable components.

Table 1: Direct Materials

Material	Quantity per unit	Cost	Total per unit
potatoes	1.5 lbs	$0.60	$0.90
seasoning	0.1 ounces	0.05	0.005
packaging	1 bag	0.25	0.25
	1/12 box	0.54	0.045
Total cost			$1.20

Table 2: Direct Labor

Job description	Hours per bag	Rate	Total cost
Potato washer & peeler	0.1	$11.50	$1.15
Slicer & Fryer	0.04	11.50	0.46
Packager	0.06	11.50	0.69
Total cost			$2.30

Table 3: YEARLY OVERHEAD COSTS

Cost description	Amount
Indirect material	$6,500
Indirect labor	61,450
Machine Maintenance	4,120
Electricity	3,570
Depreciation	6,340
Quality testing	10,520
Total	92,500

Predetermined OH rate:

Table 4 Actual Overhead cost for the last two months

	Month 1	Month 2
Indirect Material (F)	$530	$530
Indirect Labor (F)	5,250	5,250
Machine Maintenance	370	445
Electricity	180	225
Depreciation (F)	625	625
Quality testing	510	600
Machine Hours *	1,200	1,500

*12 minutes of machine time per bag of chips (1/5 hour = 1 unit)

Complete any calculations here:

Table 5: Variable and Fixed Costs

COSTS Description VARIABLE Cost per unit FIXED Cost per Year

TOTAL

If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column.

CVP Calculations: