Nancy\'s Nut House is a processor and distributor of a variety of different nuts
ID: 2490513 • Letter: N
Question
Nancy's Nut House is a processor and distributor of a variety of different nuts. The company buys nuts from around the world and roasts, seasons, and packages them for resale. Nancy's Nut House currently offers 16 different types of nuts in one-pound bags through catalogs and gourmet shops. The company's major cost is that of the raw nuts; however, the predominantly automated roasting and packing processes consume a substantial amount of manufacturing overhead cost. The company uses relatively little direct labor. Some of Nancy's nuts are very popular and sell in large volumes, but a few of the newer types sell in very low sales volumes. Nancy's prices its nuts at cost (including overhead) plus a markup of 40%. If the resulting prices of certain nuts are significantly higher than the market price, adjustments are made. Although the company competes primarily on the quality of its products, customers are price conscious. Data for the annual budget include manufacturing overhead of $5,959,850, allocated on the basis of each product's direct labor cost. The annual budgeted direct labor cost totals $1, 240,000. Based on the sales budget and raw materials standards, purchases and use of raw materials are expected to total $9,163,000 for the year. The unit costs of a one-pound bag of two of the company's products follows. Nancy's controller believes that the traditional costing system may be providing misleading cost information, so she has developed the following analysis of the annual budgeted manufacturing costs. Data regarding the annual production of cashews and chestnuts follow. There will be no Raw Materials Inventory for either type of nuts at the beginning of the year. Using the current costing system, calculate the cost and selling price of one pound of cashews and one pound of chestnuts.Explanation / Answer
Calculation of activity rate
Activity
Cost driver
Budgeted activity
Budgeted cost
Activity rate
Purchasing
Purchase orders
11390
$ 1,218,730
$ 107
per Purchase order
Material Handling
Number of setups
1760
$ 1,469,600
$ 835
per setup
Quality Control
Number of batches
600
$ 306,000
$ 510
Per batch
Roasting
Roasting hours
96290
$ 1,829,510
$ 19
per Roasting hour
Seasoning
Seasoning hours
33300
$ 632,700
$ 19
per Seasoning hour
Packaging
Packaging hours
26490
$ 503,310
$ 19
per Packaging hour
Allocation of manufacturing overhead
Activity
Activity rate
Cashews
Chestnuts
No. of activity
Allocated cost
No. of activity
Allocated cost
Purchasing
$ 107
per Purchase order
49.60
$ 5,307
40
$ 1,984
Material Handling
$ 835
per setup
49.60
$ 41,416
8
$ 397
Quality Control
$ 510
Per batch
12.40
$ 6,324
2
$ 25
Roasting
$ 19
per Roasting hour
1,612
$ 30,628
26
$ 41,912
Seasoning
$ 19
per Seasoning hour
372
$ 7,068
6
$ 2,232
Packaging
$ 19
per Packaging hour
124
$ 2,356
2
$ 248
Total
$ 93,099
$ 46,798
Expected sales volume (lbs.)
124,000
2000
Cost per pound
$ 0.75
$ 23.40
Cashews
Chestnuts
Raw materials
$ 4.50
$ 3.32
Direct labor
$ 0.30
$ 0.30
Manufacturing overhead
$ 0.75
$ 23.40
Cost per pound
$ 5.55
$ 27.02
Selling price (Cost *1.40)
$ 7.77
$ 37.83
Activity
Cost driver
Budgeted activity
Budgeted cost
Activity rate
Purchasing
Purchase orders
11390
$ 1,218,730
$ 107
per Purchase order
Material Handling
Number of setups
1760
$ 1,469,600
$ 835
per setup
Quality Control
Number of batches
600
$ 306,000
$ 510
Per batch
Roasting
Roasting hours
96290
$ 1,829,510
$ 19
per Roasting hour
Seasoning
Seasoning hours
33300
$ 632,700
$ 19
per Seasoning hour
Packaging
Packaging hours
26490
$ 503,310
$ 19
per Packaging hour
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