South Dakota Microbrewery
1. As Exhibit 1 shown, I first calculate the predetermined overhead rate, which is $15.57 per direct labor hour. And I distributed the dollar amount to different proportion based on Direct-Labor hours to get the overhead cost. Sum the overhead and direct cost to get the total cost; this will be the total cost of producing a batch of beer label. Therefore, we need to divide them up by the bottle per batch in order to know the cost per each bottle for each label.
As shown in Exhibit 2, I have determined the allocation rate of each cost driver, and that will allow me to assign them to different cost pool; base on the activities. Adding up all the number I assigned, will give me the overhead cost for each label of a batch. Sum the number up with the direct cost as I did in Exhibit 1, in order to get the cost per batch and per bottle for each beer label. 2. To find gross margin for each batch, we need to know how much they earn by selling one single beer. Use the information from Exhibit 1 and 2; we can know the total cost of each bottle of label. Take away the cost from the selling price, and it will give us the gross margin of selling one beer. Multiply the number to the “number of bottle in a batch”, to get the gross margin for a batch. 3. The benefits of using Plant-wide allocation based method are that, it is simple and easy to calculate. It doesn’t give a really terrible result, it is totally usable with a smaller size companies with smaller amount of product lines. On the other hand, the advantages of using Activity-based cost system are that, it is much more accurate displaying costs. And it will work best with a larger scale of company and product lines. Also, during the process, managers will acquire more information than other method, which is always good to have more information.
However, the drawback of using Plant-wide allocation based method are that, it is inaccurate in displaying costs, sometime that might cause the managers to
As shown in Exhibit 2, I have determined the allocation rate of each cost driver, and that will allow me to assign them to different cost pool; base on the activities. Adding up all the number I assigned, will give me the overhead cost for each label of a batch. Sum the number up with the direct cost as I did in Exhibit 1, in order to get the cost per batch and per bottle for each beer label. 2. To find gross margin for each batch, we need to know how much they earn by selling one single beer. Use the information from Exhibit 1 and 2; we can know the total cost of each bottle of label. Take away the cost from the selling price, and it will give us the gross margin of selling one beer. Multiply the number to the “number of bottle in a batch”, to get the gross margin for a batch. 3. The benefits of using Plant-wide allocation based method are that, it is simple and easy to calculate. It doesn’t give a really terrible result, it is totally usable with a smaller size companies with smaller amount of product lines. On the other hand, the advantages of using Activity-based cost system are that, it is much more accurate displaying costs. And it will work best with a larger scale of company and product lines. Also, during the process, managers will acquire more information than other method, which is always good to have more information.
However, the drawback of using Plant-wide allocation based method are that, it is inaccurate in displaying costs, sometime that might cause the managers to