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Q1) Aunt Ethel's Fancy Cookie Company produces and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. Batch size for cookies is limited to 1,000 cookies based on size of ovens and cookie molds owned by company. Based on budgetary projections, information listed below is available:

 

Macaroon

Sugar

Butter cream

Projected sales in units

500,000

800,000

600,000

 

 

 

 

PER UNIT data:

 

 

 

Selling price

$0.80

$0.75

$0.60

Direct materials

$0.20

$0.15

$0.14

Direct labor

$0.04

$0.02

$0.02

 

 

 

 

Hours per 1000-unit batch:

 

 

 

Direct labor hours

2

1

1

Oven hours

1

1

1

Packaging hours

0.5

0.5

0.5

Total overhead costs and activity levels for the year are estimated as follows:

Activity

Overhead costs

Activity levels

Direct labor

$210,000

2,400 Hours

Oven

$150,000

1,900 Oven Hours

Packaging

$360,000

950 Packing Hours

1) Find out activity-cost-driver rate for packaging costs.

2) Using ABC system, for sugar cookie, find out estimated overhead costs per thousand cookies.

3) Using ABC system, for sugar cookie, find out estimated operating profit per thousand cookies.

4) Using traditional system (with direct labour hours as overhead allocation base) for sugar cookie, find out estimated overhead costs per thousand cookies.

5) Using traditional system (with direct labour hours as overhead allocation base) for sugar cookie, find out estimated operating profit per thousand cookies.

6) Describe difference between profits got from traditional system and ABC system. Which system gives better estimate of profitability? describe why?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M917392

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