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 Cashew Unused units of Butter Butter Capacity 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 $50 $49 Direct labor cost per case $10 $8 Advertising costs $200,000 $60,000 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 Machine Receiving Packing Total costs $0 $200,000 200,000 250,000 200,000 22,500 100,000 45,000 $500,000 $517,500
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 Cashew Unused units of Butter Butter Capacity 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 $50 $49 Direct labor cost per case $10 $8 Advertising costs $200,000 $60,000 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 Machine Receiving Packing Total costs $0 $200,000 200,000 250,000 200,000 22,500 100,000 45,000 $500,000 $517,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
7.2
Transcribed Image Text:2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin.
Nutterco, Inc.
Activity-Based Income Statement
Peanut Butter Cashew Butter Total
Contribution margin
Less traceable expenses:
Product margin
Less unused activity expenses:
Operating income
Using ABC approach, determine whether the cashew butter product line should be kept or dropped.
0000 0000
$
Transcribed Image Text: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
Cashew
Unused
units of
Purchaseb
Butter
Butter
Capacity²
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
$ 50
$49
Direct labor cost per case
$10
$8
Advertising costs
$200,000
$60,000
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
Machine
Receiving
Packing
Total costs
$0
$200,000
200,000
250,000
200,000
22,500
100,000
45,000
$500,000 $517,500
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