Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plant-wide factory rate based on direct labor hours. Information for the month of May 2000, Bugaboo's first month of operations, follows:
- Budgeted
- Unit Volume Direct Labor
- Hours per unit
- Fluffs 80,000 boxes 0.10
- Crinkles 60,000 boxes 0.20
- Snaps 20,000 boxes 1.00
Bugaboo has budgeted direct labor costs for May at $4.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.85/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.
Bugaboo's budgeted overhead costs for May are:
- Indirect labor $280,000
- Utilities 65,000
- Supplies 45,000
- Depreciation 30,000
- Total $420,000
Assume that Bugaboo sells all the boxes it produces in May.
(a) Compute Bugaboo's plant-wide factory overhead rate for May.
(b) Compute May's product cost for each type of cookie.
(c) Does Bugaboo's use of a plant-wide factory overhead rate in any way distort May's product costs?