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ABC System

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company.

Macaroon Sugar Buttercream
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 OH Costs Activity levels
Direct labor 2400 hours
Oven $210,000 1900 oven hours
Packaging $150,000 950 packaging hours
$360,000

1) Determine the activity-cost driver rate for packaging cost.

2) Using the ABC system, for the sugar cookie, compute the estimated overhead cost per thousand cookies.

3) Using the ABC system, for the sugar cookie, compute the estimated profit per thousand cookies.

4) Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per thousand cookies.

5) Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated operating profit per thousand cookies.

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Problem posted:

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company.

Macaroon Sugar Buttercream
Projected sales in units 500,000 800,000 600,000

PER UNIT data:
Selling price $0.80 $0.75 $0.60 ...

Solution Summary

Your response is in Excel and links formulas to the data given so you have a template for future problems.

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