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 …show more content…

9 |
|Packaging |110000 |Packaging machine hours |1100 |100.00 |
|Quality Control |18000 |Batches |286 |62.94 |

From Exhibit 2,

Total Batch for Polynesian Fantasy = 2000 / 100 = 20
Total Batch for Vanilla = 100000 / 2500 = 40

Total Material Handling setup (per batch) for Polynesian Fantasy = 20 * 3 = 60
Total Material Handling setup (per batch) for Vanilla = 40 * 3 = 120

Total purchase orders for Polynesian Fantasy = 2000 / 50 = 40
Total purchase orders for Vanilla = 100000 / 1000 = 100

Total Blending time (Hrs) for Polynesian Fantasy = (2000 * 0.6)/100 = 12 Hrs
Total Blending time (Hrs) for Vanilla = (100000 * 0.3) / 100 = 300 Hrs

Total freezing time (Hrs) for Polynesian Fantasy = (2000 * 1) / 100 = 20 Hrs
Total freezing time (Hrs) for Vanilla = (100000 * 1) / 100 = 1000 Hrs

Total Packaging time (Hrs) for Polynesian Fantasy = (2000 * 0.3) / 100 = 6
Total Packaging time (Hrs) for Vanilla = (100000 * 0.2) / 100 = 200

Using the above details and per unit cost calculated from exhibit 1, the overhead costs for both the products are as under:

| OVERHEAD DETAILS |Polynesian Fantasy |Vanilla |
|Purchase overhead