Jackie-O-Ville Delights manufactures two products, truffles and fudge. The compa

Question

Jackie-O-Ville Delights manufactures two products, truffles and fudge. The company expects to produce and sell 3,200 cases of truffles and 2,100 cases of fudge during the year. Jackie-O-Ville Delights uses activity-based costing to compute overhead costs per product. Data relating to the company’s three activity cost pools are given below for the current year:

Truffles

Fudge

Direct Materials

$5.25

$3.20

Direct Labor

$11.15

$8.95

Activity Cost Pool

Estimated

Overhead Costs

Expected Activity

Truffles

Fudge

Total

Machine Setups

$14,040

260

260

520

Purchase orders

$139,400

1080

2,320

3,400

General Factory

$202,320

7,040

4,200

11,240

Required:

Using the activity-based costing approach, determine the overhead rates for each activity cost pool. 6 points)

Using the above overhead rates determine the overhead cost charged per case to each product (20 points)

Determine the total cost per unit for each product (6 points)

Calculate the cost per unit under the traditional method of allocating overhead using a plant wide predetermined overhead rate using direct labor cost as the activity level.

Calculate the percentage difference in price if the company desires a 40% product profit margin and how it may impact the Truffles and Fudge market.

Truffles

Fudge

Direct Materials

$5.25

$3.20

Direct Labor

$11.15

$8.95

Activity Cost Pool

Estimated

Overhead Costs

Expected Activity

Truffles

Fudge

Total

Machine Setups

$14,040

260

260

520

Purchase orders

$139,400

1080

2,320

3,400

General Factory

$202,320

7,040

4,200

11,240

Explanation / Answer

1) Caculation of Overhead Rate (Amounts in $)

2) Calculation of Overhead Cost per case (Amounts in $)

3) Calculation of cost per unit of each product (Amounts in $)

4) Total direct labor cost for both products = (3,200 cases*$11.15)+(2,100 cases*$8.95)

= $35,680+$18,795 = $54,475

Total Overhead Cost = $14,040+$139,400+$202,320 = $355,760

Overhead cost per direct labor cost = $355,760/$54,475 = $6.530702

Calculation of cost per unit of each product (Amounts in $)

Activity Cost Pool Estimated Overhead Costs (A) Total Expected Activity (B) Overhead Rate (A/B) Machine Setups 14,040 520 27 Purchase orders 139,400 3,400 41 General Factory 202,320 11,240 18

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