Concept explainers
1.
To compute:Cost of each product line.
1.

Explanation of Solution
Given below is the table for the calculation of cost of each product line using ABC:
Activities consumed | Activity rate ($) | Activity cost allocated ($) | Activities consumed | Activity rate ($) | Activity cost allocated ($) | |
Liquid materials | 1,400 gallons | 0.06 | 84 | 37,000 gallons | 0.06 | 2,220 |
Dry materials | 620 pounds | 0.55 | 341 | 12,000 pounds | 0.55 | 6,600 |
Utilities | 200 MH | 0.36 | 72 | 3,750 MH | 0.36 | 1,350 |
Bottles | 12,500 bottles | 0.40 | 5,000 | 180,000 bottles | 0.40 | 72,000 |
Labeling | 37,500 labels | 0.03 | 1,125 | 180,000 labels | 0.03 | 5,400 |
Machine setup | 500 setups | 25 | 12,500 | 300 setups | 25 | 7,500 |
Total cost | 19,122 | 95,070 |
Working note:
Calculation of activity rate,
Activity cost pools | Activity measure | Overhead cost assigned to pool ($) | Number of activities | Activity rate ($) |
Liquid materials | Gallons | 2,304 | 38,400 gallons | 0.06 per gallon |
Dry materials | Pounds | 6,941 | 12,620 pounds | 0.55 per pound |
Utilities | Machine hours | 1,422 | 3,950 MH | 0.36 per MH |
Bottles | Units | 77,000 | 192,500 bottles | 0.40 per bottle |
Labeling | Labels per bottle | 6,525 | 217,500 labels | 0.03 per label |
Machine setup | Setups | 20,000 | 800 setups | 25 per setup |
Calculation of number of activities,
Activity measure | Hi-Voltage activities | Easy slim activities | Number of activities |
Gallons | 1,400 | 37,000 | 38,400 gallons |
Pounds | 620 | 12,000 | 12,620 pounds |
Machine hours | 200 | 3,750 | 3,950 MH |
Units | 12,500 | 180,000 | 192,500 bottles |
Labels | 37,500 | 180,000 | 217,500 labels |
Hi-Voltage | |||
Easy slim | |||
Setups | 500 | 300 | 800 setups |
Hence, the total cost of hi-voltage product is $19,122 and easy slim product is $95,070.
2.
To compute: Cost per bottle for each product.
2.

Explanation of Solution
Calculate cost per bottle for Hi-Voltage.
Given,
Total cost of Hi-Voltage is $19,122.
Number of bottles of Hi-Voltage is 12,500 bottles.
Formula for computation of cost per bottle,
Substitute $19,122 for the value of total cost of Hi-Voltage and 12,500 for the value of number of bottles of Hi-Voltage.
Calculate cost per bottle for easy slim.
Given,
Total cost of Easy slim is $95,070.
Number of bottles of Easy slim is 180,000 bottles.
Formula for computation of cost per bottle,
Substitute $95,070 for the value of total cost of easy slim and 180,000 for the value of number of bottles of easy slim.
Hence, cost per bottle of Hi-Voltage is $1.53 and Easy slim is $0.53.
3.
To compute: Profit per bottle of Hi-Voltage.
3.

Explanation of Solution
Calculateprofit per bottle of High-Voltage.
Given,
Selling price per bottle is $3.75.
Cost per bottle is $1.53.
Formula for computation profit per bottle of Hi-Voltage:
Substitute $3.75 for the value of selling price per bottle and $1.53 for the value of cost per bottle.
Hence,profit per bottle of hi-voltage is $2.22.
4.
To compute: Minimum price per bottle of easy slim.
4.

Explanation of Solution
- The cost per bottle of easy slim is $0.53, so the Company should set a price which covers the cost of bottle and also earns a minimum
rate of return over and above the cost per bottle. - B Company should set a minimum selling price of $0.54 which is higher than $0.53 and will get the company minimum rate of return.
Hence, B Company should set a minimum selling price of $0.54.
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Chapter 17 Solutions
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