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ABC and CVP Analysis: Multiple Products Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow: Rose Violet Expected sales (in cases) 54,500 10,900 Selling price per case $101 $78 Direct labor hours 32,000 6,200 Machine hours 10,100 2,950 Receiving orders 51 28 Packing orders 95 51 Material cost per case $53 $42 Direct labor cost per case $12 $7 The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours. Fixed Variable Direct labor benefits $ — $181,010 Machine costs 198,000* 251,840 Receiving department 244,500 — Packing department 106,500 — Total costs $549,000 $432,850 * All depreciation
Required:
1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even.
2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even.

Respuesta :

anthougo

1. The number of cases to break even, using the conventional approach of allocating overhead costs is as follows:

Rose = 15,670 cases ($459,900/$29.35)

Violet = 3,951 cases ($89,100/$22.55)

2. The number of cases to break even, using the ABC approach of allocating overhead costs is as follows:

Rose = 15,516 cases ($459,900/$29.64)

Violet = 4,227 cases ($89,100/$21.08).

Data and Calculations:

                                                  Rose    Violet

Expected sales (in cases)     54,500   10,900

Selling price per case               $101        $78

Direct labor hours                32,000    6,200

Machine hours                       10,100    2,950

Receiving orders                         51          28

Packing orders                           95           51

Material cost per case            $53           $42

Direct labor cost per case      $12             $7

Variable overhead per case   $6.65       $6.45

Total variable cost per case $71.65      $55.45

Contribution per case           $29.35      $22.55

Total fixed costs               $459,900     $89,100

Overhead Costs:

                                            Fixed        Variable     Total Costs

Direct labor benefits            $ —          $181,010       $181,010

Machine costs                    198,000     251,840       449,840

Receiving department      244,500               —       244,500

Packing department          106,500              —        106,500

Total costs                     $549,000  $432,850    $981,850

Conventional Allocation of Variable Overhead Costs:

                                                 Rose        Violet           Total

Direct labor hours                32,000        6,200          38,200

Overhead costs assigned:

Variable overhead costs    $362,597   $70,253  $432,850

                              ($11.33115 x 32,000)  ($11.33115 x 6,200)

Expected sales (in cases)     54,500        10,900

Variable overhead per case   $6.65       $6.45 ($70,253/10,900)

ABC Allocation of Variable Overhead Costs:

                                         Rose     Violet     Total  Total Costs  Overhead Rate

Direct labor hours         32,000     6,200  38,200    $181,010      $4.74

Machine hours                10,100     2,950   13,050  $251,840      $19.30

Allocated overhead:          Rose     Violet  

Direct labor benefits         $151,680  $29,388

Machines costs                $194,930  $56,935

Total variable overhead $346,610   $86,323

Expected sales (in cases) 54,500      10,900

Variable o/h per case       $6.36        $7.92 ($86,323/10,900)

Selling price per case           $101        $78

Material cost per case           $53        $42

Direct labor cost per case      $12         $7

Overhead cost per case:

Variable overhead per case   $6.36    $7.92

Total variable cost per case $71.36      $56.92

Contribution per case           $29.64    $21.08

Total fixed costs                $459,900  $89,100

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