Peanut Cashew Unused Units of Butter Сарасity' Purchase Butter 50,000 $100 10,000 Expected sales (in cases) Selling price per case S80 Direct labor hours 40,000 10,000 As needed Receiving orders Packing orders Material cost per case Direct labor cost per case Advertising costs 500 250 250 500 1,000 500 500 250 $50 $10 S48 S8 S200,000 $60,000 Practical capacity less expected usage (all unused capacity is permanent). In 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. Peanut Cashew Unused Units of Butter Сарасity' Purchase Butter 50,000 $100 10,000 Expected sales (in cases) Selling price per case S80 Direct labor hours 40,000 10,000 As needed Receiving orders Packing orders Material cost per case Direct labor cost per case Advertising costs 500 250 250 500 1,000 500 500 250 $50 $10 S48 S8 S200,000 $60,000 Practical capacity less expected usage (all unused capacity is permanent). In 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.

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

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:

Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver.

Required:
1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on
direct labor hours. Using this approach, determine whether the cashew butter product line
should be kept or dropped.
2. Prepare an activity-based segmented income statement. Repeat the keep-or-drop analysis
using an ABC approach.

Peanut
Cashew
Unused
Units of
Butter
Сарасity'
Purchase
Butter
50,000
$100
10,000
Expected sales (in cases)
Selling price per case
S80
Direct labor hours
40,000
10,000
As needed
Receiving orders
Packing orders
Material cost per case
Direct labor cost per case
Advertising costs
500
250
250
500
1,000
500
500
250
$50
$10
S48
S8
S200,000
$60,000
Practical capacity less expected usage (all unused capacity is permanent).
In 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.

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