Group Project 1 Bakers Delight BD has been in the food proce

Group Project 1

Baker’s Delight (BD) has been in the food processing business for three years (2016 and 2017). BD used a traditional costing system and applied all indirect cost (manufacturing overhead) using budgeted units (pounds) as its application base. In 2016 and 2017, BD’s sole product was Raisin Cake. All cakes were manufactured and processed in one-pound units. The two direct cost categories were direct materials and direct manufacturing labor.

In its third year of operation (2018) BD, added a second product Layered Carrot Cake. The Layered Carrot Cake was also packaged in one-pound units. The product differs from the Raisin Cake in several ways:

More expensive ingredients

More direct manufacturing labor time is required

More complex manufacturing processing is required

In 2018, BD continued to use its traditional cost system, in which it applied manufacturing overhead using total budgeted units (pounds) to be produced for both products.

During 2018, BD’s sales staff reported greater than expected sales of Layered Carrot Cake and less than expected sales of Raisin Cake. The budgeted and actuals sales volume in 2018 is as follows:

Budgeted

Actual

Raisin Cake

160,000 units (pounds)

120,000 units (pounds)

Layered Carrot Cake

40,000 units (pounds)

80,000 units (pounds)

During 2018, the budged manufacturing overhead was $311,000.

At the end of 2018, Julie Smith, the control of BD decided to investigate how an Activity Based Cost System (ABC) would affect the product cost numbers. After consultation with operating personnel, the single-manufacturing overhead cost pool was subdivided into five activity areas:

Activity

Cost-Application Base

Budgeted Cost

Budgeted Activity

Mixing

Labor - hours

$ 65,000

1,300,000 Labor - hours

Cooking

Oven - hours

75,000

500,000 Oven hours

Cooling

Cool - room hours

16,000

800,000 Cool - room hours

Creaming/Icing

Machine - hours

75,000

300,000 Machine - hours

Packaging

Machine - hours

80,000  

1,000,000 Machine hours

Total Budgeted Overhead =

$ 311,000

Actual Data regarding the 2018 manufacture of Raisin Cake and Layered Carrot Cake is as follows. Assume there were no beginning or ending inventories either products.

Raisin Cake

Layered Carrot Cake

Mixing

Labor-hours

600,000

640,000

Cooking

Oven-hours

240,000

240,000

Cooling

Cool-room hours

360,000

400,000

Creaming/Icing

Machine-hours

-0-

240,000

Packaging

Machine-hours

360,000

560,000

Required:

1.Compute the budgeted manufacturing overhead per unit (pound) for Raisin Cake and Layered Carrot Cake using the traditional cost system that BD used in 2016 and 2017.

2.Compute the 2018 unit-product cost per unit (pound) for Raisin Cake and Layered Carrot Cake using the traditional cost system used by BD in 2016 and 2017. This would include direct materials, direct labor and manufacturing overhead.

3.Compute the estimated sales price per unit (pound) for Raisin Cake and Layered Carrot Cake using the traditional cost system used by BD in 2016 and 2017. Assume the sales price will be 30% above its cost.

4.Compute the Budgeted rate per cost-application base for the five activity areas. Assume ABC costing is implemented in 2018.

5.Compute the 2018 unit product cost per unit (pound) for Raisin Cake and Layered Carrot Cake using the ABC system. The unit cost should be the sum of the direct material, direct labor and the five activities. To give you a hint on the computation of the unit cost I have demonstrated how to compute the unit cost for the mixing activity for Raisin Cake.

Budgeted Rate per Application Base – Mixing Activity

Mixing – Total cost mixing cost $65,000/1,300,000 labor hours = .05 per hour

                                                                                                                                            

Computation of the Unit Cost of the Mixing Activity for Raisin Cake

$.05 per hour * Raising Cake labor hours = 600,000 = $30,000 total cost/ units produced $120,000= $.25 per unit

Computed the estimated sales price per pound for Raisin Cake and Layered Carrot Cake using the ABC system with a 30% Markup.

Explain the differences in the unit product costs in part 2 and 5. Why do you think BD produced less raisin cake than was budgeted? Why do you think BD produced more of the Layered Carrot Cake than what was budgeted?

Discuss some of the advantages and disadvantages of using the ABC System for BD.

**I need the bolded first two questions solved.

	Budgeted	Actual
Raisin Cake	160,000 units (pounds)	120,000 units (pounds)
Layered Carrot Cake	40,000 units (pounds)	80,000 units (pounds)

Solution

1 Budgeted Manufacturing Overhead P.U. Total Budgeted Ovehead 311,000 Total units budgeted:- Raisin Cake 160,000 Layered Carrot cake 40,000 Total units 200,000 Thus, Budegted Manufacturing cost P.U. 311,000/200,000 i.e. 1.555 Mfc OH P.U. Raisin Cake (160,000 *1.555) 248800 Layered Carrot cake (40,000*1.555) 62200 2 Activity Cost-Application Base Budgeted Cost Budgeted Activity P.U. Cost ( Budgeted cost / Budgeted activity Mixing Labor - hours 65000 1,300,000 Labor - hours 0.05 Cooking Oven - hours 75000 500,000 Oven hours 0.15 Cooling Cool - room hours 16000 800,000 Cool - room hours 0.02 Creaming/Icing Machine - hours 75000 300,000 Machine - hours 0.25 Packaging Machine - hours 80,000   1,000,000 Machine hours 0.08 Activity Cost-Application Base Raisin Cake Layered Carrot Cake P.U. Cost ( Budgeted cost / Budgeted activity Total cost (Raisin Cake) Total cost ( Layered Carrot Cake) Mixing Labor-hours 600000 640000 0.05 30000 32000 Cooking Oven-hours 240000 240000 0.15 36000 36000 Cooling Cool-room hours 360000 400000 0.02 7200 8000 Creaming/Icing Machine-hours -0- 240000 0.25 60000 Packaging Machine-hours 360000 560000 0.08 28800 44800 Total 102000 180800 Total units budgeted:- Raisin Cake 160,000 Layered Carrot cake 40,000 Total units 200,000 Total Cost: PU Cost ( Total cost/ No. of units) Raisin Cake 102000 0.6375 Layered Carrot cake 180800 4.52