California Creamery

Topics: Costs, Variable cost, Cost Pages: 8 (1290 words) Published: December 11, 2010
California Creamery, Inc.

Question 1: Compute the full production cost (per gallon) of the Polynesian Fantasy and Vanilla products using: -

A: Will’s old costing method.
B: The new costing method (Louise’s suggestion)

Ans1:

The exhibit 1 is as below:

|OVERHEAD COSTS | |Activity |Budgeted Cost ($) |"Driver" of the |Budgeted Activity level | | | |Activity's cost |for the cost driver | |Purchasing |80000 |Purchase Orders |909 | |Material Handling |95000 |Setups |1846 | |Blending |122000 |Blenders hours |1000 | |Freezing |175000 |Freezer Hours |1936 | |Packaging |110000 |Packaging machine hours |1100 | |Quality Control |18000 |Batches |286 |

The exhibit 2 is as below:

| |Polynesian Fantasy |Vanilla | |Direct Material( $/gallon) |2 |1.8 | |Direct Labor ( $/gallon) |1.2 |1.2 | |Budgeted Prod and sales (gallons) |2000 |100000 | |Batch Size (gallon) |100 |2500 | |Setups (per batch) |3 |3 | |Purchase Order Size( Gallons) |50 |1000 | |Blender Time( hr/100 gallons) |0.6 |0.3 | |Freezer Time( hr/100 gallons) |1.00 |1.00 | |Packaging Machine Time( hr/100 gallons) |0.3 |0.2 |

(A): The full production cost (per gallon) of the Polynesian Fantasy and Vanilla products as per Will’s old costing method is as below:

Overhead calculation (taking reference of exhibit 2):
Direct Labor for Polynesian Fantasy = 1.2 ($/gallon) * 2000 gallons = $2400 Direct Labor for Vanilla = 1.2 ($/gallon) * 100000 gallons = $120000

Direct Material for Polynesian Fantasy = 2 ($/gallon) * 2000 gallons = $4000 Direct Material for Vanilla = 1.8 ($/gallon) * 100000 gallons = $180000

Overhead = 2* Direct Labor (given)
For Polynesian Fantasy = 2* 2400 = $4800
For Vanilla = 2* 120000 = $240000

Summarizing the above calculation in the tabular form, we get:

| |Polynesian Fantasy |Vanilla | |Units Produced |2000 |100000 | |Direct Labor Cost ($) |2400 |120000...
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