Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter Cashew Butter Unused Capacitya units of Purchaseb Expected sales (in cases) 50,000 10,000 - - Selling price per case $100 $80 - - Direct labor hours 40,000 10,000 - As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $49 - - Direct labor cost per case $11 $8 - - Advertising costs $300,000 $70,000 - - aPractical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixeda Variableb Direct labor benefits $0 $200,000 Machine 200,000 250,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 aCosts associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. bThese costs are for the actual levels of the cost driver. Required: Question Content Area 1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on direct labor hours. Peanut Butter Cashew Butter Total $- Select - $- Select - $- Select - Less variable expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 18f491f7e028031_17 $fill in the blank 18f491f7e028031_18 $fill in the blank 18f491f7e028031_19 - Select - - Select - - Select - Product margin $fill in the blank 18f491f7e028031_24 $fill in the blank 18f491f7e028031_25 $fill in the blank 18f491f7e028031_26 - Select - Operating income $fill in the blank 18f491f7e028031_29 Question Content Area Using this approach, determine whether the cashew butter product line should be kept or dropped. Question Content Area 2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin. Peanut Butter Cashew Butter Total $- Select - $- Select - $- Select - - Select - - Select - - Select - Contribution margin $fill in the blank ea6104fafff7ffa_9 $fill in the blank ea6104fafff7ffa_10 $fill in the blank ea6104fafff7ffa_11 Less traceable expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank ea6104fafff7ffa_24 $fill in the blank ea6104fafff7ffa_25 $fill in the blank ea6104fafff7ffa_26 Less unused activity expenses: - Select - - Select - - Select - Operating income $fill in the blank ea6104fafff7ffa_33 Question Content Area Using ABC approach, determine whether the cashew butter product line should be kept or dropped.

Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter Cashew Butter Unused Capacitya units of Purchaseb Expected sales (in cases) 50,000 10,000 - - Selling price per case $100 $80 - - Direct labor hours 40,000 10,000 - As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $49 - - Direct labor cost per case $11 $8 - - Advertising costs $300,000 $70,000 - - aPractical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixeda Variableb Direct labor benefits $0 $200,000 Machine 200,000 250,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 aCosts associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. bThese costs are for the actual levels of the cost driver. Required: Question Content Area 1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on direct labor hours. Peanut Butter Cashew Butter Total $- Select - $- Select - $- Select - Less variable expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Contribution margin $fill in the blank 18f491f7e028031_17 $fill in the blank 18f491f7e028031_18 $fill in the blank 18f491f7e028031_19 - Select - - Select - - Select - Product margin $fill in the blank 18f491f7e028031_24 $fill in the blank 18f491f7e028031_25 $fill in the blank 18f491f7e028031_26 - Select - Operating income $fill in the blank 18f491f7e028031_29 Question Content Area Using this approach, determine whether the cashew butter product line should be kept or dropped. Question Content Area 2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin. Peanut Butter Cashew Butter Total $- Select - $- Select - $- Select - - Select - - Select - - Select - Contribution margin $fill in the blank ea6104fafff7ffa_9 $fill in the blank ea6104fafff7ffa_10 $fill in the blank ea6104fafff7ffa_11 Less traceable expenses: - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Product margin $fill in the blank ea6104fafff7ffa_24 $fill in the blank ea6104fafff7ffa_25 $fill in the blank ea6104fafff7ffa_26 Less unused activity expenses: - Select - - Select - - Select - Operating income $fill in the blank ea6104fafff7ffa_33 Question Content Area Using ABC approach, determine whether the cashew butter product line should be kept or dropped.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question Content Area

1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on direct labor hours.

	Peanut Butter	Cashew Butter	Total
	$- Select -	$- Select -	$- Select -
Less variable expenses:
	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -
Contribution margin	$fill in the blank 18f491f7e028031_17	$fill in the blank 18f491f7e028031_18	$fill in the blank 18f491f7e028031_19
	- Select -	- Select -	- Select -
Product margin	$fill in the blank 18f491f7e028031_24	$fill in the blank 18f491f7e028031_25	$fill in the blank 18f491f7e028031_26
			- Select -
Operating income			$fill in the blank 18f491f7e028031_29

Question Content Area

Using this approach, determine whether the cashew butter product line should be kept or dropped.

Question Content Area

2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin.

	Peanut Butter	Cashew Butter	Total
	$- Select -	$- Select -	$- Select -
	- Select -	- Select -	- Select -
Contribution margin	$fill in the blank ea6104fafff7ffa_9	$fill in the blank ea6104fafff7ffa_10	$fill in the blank ea6104fafff7ffa_11
Less traceable expenses:
	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -
	- Select -	- Select -	- Select -
Product margin	$fill in the blank ea6104fafff7ffa_24	$fill in the blank ea6104fafff7ffa_25	$fill in the blank ea6104fafff7ffa_26
Less unused activity expenses:
			- Select -
			- Select -
			- Select -
Operating income			$fill in the blank ea6104fafff7ffa_33

Question Content Area

Using ABC approach, determine whether the cashew butter product line should be kept or dropped.

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	Peanut Butter	Cashew Butter	Unused Capacity^a	units of Purchase^b
Expected sales (in cases)	50,000	10,000	-	-
Selling price per case	$100	$80	-	-
Direct labor hours	40,000	10,000	-	As needed
Receiving orders	500	250	250	500
Packing orders	1,000	500	500	250
Material cost per case	$55	$49	-	-
Direct labor cost per case	$11	$8	-	-
Advertising costs	$300,000	$70,000	-	-
^aPractical capacity less expected usage (all unused capacity is permanent).
^bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity.

Activity	Fixed^a	Variable^b
Direct labor benefits	$0	$200,000
Machine	200,000	250,000
Receiving	200,000	22,500
Packing	100,000	45,000
Total costs	$500,000	$517,500