South Dakota Microbrewery Case

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1.

A/B.

Buffalo Ale:

A.

Direct Materials: 62.80

Direct Labor: 108.00

Labor Hours: 18 Hours

18 x 15.57 = 280.26

Cases Created: 22 x 24 (Quantity of Bottles/Case) = 528

Total Cost Per Batch: $451.06
Cost Per Bottle = 451.06/528 = $0.85/Bottle

B.

Direct Materials: 62.80

Direct Labor: 108.00

Fermentation Days: 13.06 x 3 = 39.18

Direct Labor Hours: 1 x 18 = 18

Machine Hours: 0.07 x 110 = 7.7

Number of Orders: 8.36 x 2 = 16.71

Quality Control Inspections: 5 x 2.16 = 10.8

Bottles Produced: .10 x 528 = 52.8

Total Cost Per Batch: $315.99
Cost per Bottle: $0.60

Bismark Bock:

A.

Direct Materials: 88.95

Direct Labor: 72.00

Labor Hours: 12 Hours

12 x 15.57 = 186.84

Cases Created: 16 x 24 = 384

Total Cost Per Batch: 347.79
Cost Per Bottle = 347.79/384 = $0.91

B.

Direct Materials: 88.95

Direct Labor: 72.00

Fermentation Days: 13.06 x 14 = 182.84

Direct Labor Hours: 1 x 12 = 12

Machine Hours: 0.07 x 325 = 22.75

Number of Orders: 8.36 x 18 = 150.48

Quality Control Inspections: 2.16 x 22 = 47.52

Number of Bottles Per Batch: 384 x 0.10 = 38.4

Total Cost Per Batch: $614.94
Cost Per Bottle: 614.94/384 = 1.6

Four Heads Stout:

A.

Direct Materials: 89.55

Direct Labor: 78.00

Labor Hours: 13
13 x 15.57 = 202.41

Cases Created: 18 x 24 = 432

Total Cost Per Batch: 369.96
Cost Per Bottle = 369.96/432 = $0.86

B.

Direct Materials: 89.55

Direct Labor: 78.00

Fermentation Days: 13.06 x 4 = 52.24

Direct Labor Hours: 13 x 1 = 13

Machine Hours 0.07 x 135 = 9.45

Number of Orders: 8.36 x 9 = 75.24

Quality Control Inspections: 2.16 x 8 = 17.28

Bottles Per Batch: 0.10 x 432 = 43.2

Total Cost Per Batch: $377.96
Cost Per Bottle: 377.96/432 = $0.87

1B. Additional Working

Overhead costs/Estimated number of bottles produced

$38,000 = Fermentation Days Cost / 2,910 = $13.06

7500 Direct Labor Hours /7500 = $1

5,500 Machine Hours 82,700 = 0.07

31,250 Orders 3,740 = 8.36

10,500 Quality control 4,850 = 2.16

24,000 Bottles Produced 229,920

2.

Buffalo Ale:
1.05 Per Bottle x 528 = $554.40 (Selling Price Per Batch)

Labor Allocation: 554.40 - 451.06 = 103.34 GM
GM Percentage: 103.34/554.40 = 18.64%

ABC Method: 554.40 - 315.09 = 239.41 GM
GM Percentage: 239.41/554.40 = 43.18%

Bismark Bock:
1.50 Per Bottle x 384 = 576.00 (Selling Price Per Batch)

Labor Allocation: 576.00 – 347.79 = 228.21
GM Percentage: 39.62%

ABC Method: 576.00 – 614.94 = (38.94)
GM Percentage: (6.76%)

Four Heads Stout:
1.40 Per Bottle x 432 = 604.8

Labor Allocation: 604.8 – 369.96 = 207.84
GM Percentage: 34.37%

ABC Method: 604.8 – 377.96 = 226.84
GM Percentage: 37.5%

3.

Both systems have their advantages and disadvantages, the labor-based allocation method provides a fast straightforward method for businesses with labor intensive processes that in many businesses make up the majority of these costs. For this microbrewery however, especially within overheads the percentage of costs labor attributes towards is relatively minimal. Therefore reducing the effectiveness of such a method. ABC however represents a more in depth look at cost allocation and within such a business where there are a huge variety of factors involved looking at a more segmented form of activity based cost allocation is extremely important.

4.

On a general level product margins look to be fairly strong, however when we take a closer look at the ABC costing method used for the beer label Bismark Bock we see instead of the across the board high gross margin percentage – there is a potential loss. Now a variety of factors come into play here and although a small price rise is potentially a solution, the opposite effect on demand it will have must be contended with, however the case study mentions the target market for this product is relatively more specialized and high end. This combined...
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