Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below.] Sara's Salsa Company produces its condiments in two types: Extra Fine for restaurant customers and Family Style for home use. Salsa is prepared in department 1 and packaged in department 2. The activities, overhead costs, and drivers associated with these two manufacturing processes and the company's production support activities follow Overhead Activity Driver Quantity Process Department Mixing 1 cost Cooking Product testing $ 5,800 Machine hours2,200 12,900 Machine hours2,200 1,000 113,800 Batches $132,500 $315,000 20,000 Department Machine 2 Production calibration Labeling Defects 500 145,000 145,000 Cases of output 9,000 Cases of output $344,000 Recipe formulation $ 82,000 Focus groups Heat, lights, and water Support 40 33,000 Machine hours2,200 Materials handling 78,000 Container types $193,000 Additional production information about its two product lines follows Extra Fine Family Style 112,000 cases Units produced Batches Machine hours Focus groups Container types Production runs 33,000 cases 330 batches 670 batches 900 MH 1,300 MH 30 groups 10 groups 6 containers 2 containers 240 runs 260 runs

Explanation / Answer

Solution:

1. Plantwide overhead rate = (132,500 + 344,000 + 193,000)/ (33,000 + 112,000)

Plantwide overhead rate = 669,500/145,000

Plantwide overhead rate = 4.62

2. Total cost per unit

Extra fine = 4.62 + 9 = 13.62

Family style = 4.62 + 8 = 12.62

3a. Gross profit = market price - total cost

Extra fine = 18 - 13.62 = $4.38

Family style = 12 - 12.62 = ($0.62)

3b. Eliminate Family Style because gross profit is negative.

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