[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.
Process Activity Overhead cost Driver Quantity
Department 1 Mixing $ 5,900 Machine hours 2,300
Cooking 12,500 Machine hours 2,300
Product testing 113,900 Batches 850
$ 132,300
Department 2 Machine calibration $ 320,000 Production runs 500
Labeling 19,000 Cases of output 150,000
Defects 8,000 Cases of output 150,000
$ 347,000
Support Recipe formulation $ 83,000 Focus groups 50
Heat, lights, and water 46,000 Machine hours 2,300
Materials handling 79,000 Container types 8
$ 208,000
Additional production information about its two product lines follows.
Extra Fine Family Style
Units produced 34,000 cases 116,000 cases
Batches 340 batches 510 batches
Machine hours 950 MH 1,350 MH
Focus groups 32 groups 18 groups
Container types 5 containers 3 containers
Production runs 250 runs 250 runs
Required:
1. Using a plantwide overhead rate based on cases, compute the overhead cost that is assigned to each case of Extra Fine Salsa and each case of Family Style Salsa.
2. Using the plantwide overhead rate, determine the total cost per case for the two products if the direct materials and direct labor cost is $10 per case of Extra Fine and $9 per case of Family Style.
3.a. If the market price of Extra Fine Salsa is $19 per case and the market price of Family Style Salsa is $13 per case, determine the gross profit per case for each product.
3.b. What might management conclude about the Family Style Salsa product line?

1.$4.58 per cases

2. Extra Fine $14.58

Family Style $13.58

3a. Extra Fine $4.42

Family Style $0.58

3b. What might the management conclude about the Family Style Salsa product line is that Family Style salsa are not yielding profit which may inturn make the company to stop the production of the product in a situation where the cost are not reduced

Explanation:

1. Computation for the overhead cost that is assigned to each case of Extra Fine Salsa and each case of Family Style Salsa using Plantwide overhead rate

Using this formula

Overhead cost=Total overhead cost/Total volume

Let plug in the formula

First step is to calculate the Total overhead cost

Total overhead cost = $132,300+ $347,000+$208,000

Total overhead cost =$687,300

Second step is to calculate the Total volume

Total volume= 34,000 +116,000

Total volume=150,000 cases

Now let calculate the Overhead cost

Overhead cost=$687,300/150,000 cases

Overhead cost=$4.58 per cases (rounded)

Therefore since we are making use of plantwide rate which means that same overhead cost of the amount of $4.58per cases will be assigned to each of the two case .

2. Calculation to determine the total cost per case for the two products

Extra Fine Family Style

Direct materials + Direct Labor $ 10.00 $ 9.00

Add Overhead $4.58 $4.58

Manufacturing cost per case $ 14.58 $ 13.58

Therefore the the total cost per case for the two products will be:

Extra Fine $14.58

Family Style $13.58

3-A Calculation to determine the gross profit per case for each product.

Extra Fine Family Style

Selling price per case $ 19.00 $ 13.00

Less Manufacturing cost per case $14.58 $13.58

Gross profit (loss) per case $ 4.42 $ (0.58 )

Therefore the gross profit per case for each product will be ;

Extra Fine $4.42

Family Style $0.58

3-b. What might the management conclude about the Family Style Salsa product line is that Family Style salsa are not yielding profit because they are not profitable which may inturn make the company to stop the production of the product In a situation where the cost are not reduced .