question archive Breeze beverage company manufacturing soft drinks, information about two products is as follows: Volume sales price per case Gross profit per case Dr
Breeze beverage company manufacturing soft drinks, information about two products is as follows: Volume sales price per case Gross profit per case Dr
Subject:AccountingPrice:2.89 Bought3
Breeze beverage company manufacturing soft drinks, information about two products is as follows:
|
|
Volume |
sales price per case |
Gross profit per case |
|
Dr.kola |
800.000 cases |
$30 |
$12
|
|
Tahiti punch |
10,000 cases |
30 |
12 |
It is known that both products have the same direct materials and direct labor costs per case. Breeze beverage allocates factory overheads to products by using a single plantwide factory overhead rate, based on direct labor cost. Additional information about the two products is as follows Dr. Kola: Requires minor process preparation and sterilization prior to processing. The ingredients are acquired locally. The formation is simple, and it is easy to maintain quality. Lastly, the product is sold large bulk (full truckload) orders.
Tahiti Punch: Requires extensive process preparation and sterilization prior to processing. The ingredients are from Jamaica, requiring complex import controls. The formulation is complex, and it is thus difficult to maintain quality. Lastly, the product is sold in small (less than full truckload) orders.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
The product profitability report indicates that the two products are equal in terms of profitability (on a per-case basis). However, the additional information indicates that there will be more activities required for Tahiti Punch than for Dr. Kola. Apparently, the factory overhead costs are being allocated on the basis of a single activity base that does not capture these product differences. Since the direct labor costs are equal for producing a case of each product, the factory overhead allocated to each case would also be the same under the single plantwide factory overhead rate method. Thus, they would appear to have similar cost and profitability. An activity-based costing approach would likely demonstrate that the Tahiti Punch is less profitable and the Dr. Kola more profitable than indicated by the single plantwide factory overhead rate method.
