Problem - Apple Snacks manufactures a healthy alternative to potato chips called Garden Straws. Apple Snacks is trying to introduce this new product and gain market share in the snack foods industry.
The company recently began distributing large, wholesale containers of Garden Straws to surrounding area schools and snack packs to vending machine companies and convenience stores.
The CEO of Apple Snacks just attended a conference that focused on activity-based costing systems and she would like to implement such a system at Apple Snacks. She organized a team, which identified the following activities, related costs and cost allocation bases for the manufacturing of Garden Straws:
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Activity
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Estimated Indirect Activity Costs
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Allocation Base
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Estimated Quantity of Allocation Base
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Materials handling
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$35,000.00
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Ounces
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20,000 ounces
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Packaging
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$90,000.00
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Machine hours
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3,000 hours
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Quality assurance
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$12,500.00
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Samples
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1,000 samples
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Total indirect costs
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$137,500.00
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The wholesale containers of Garden Straws had a total weight of 6,000 ounces, used 1,500 machine hours and required 150 samples. The snack packs had a total weight of 4,000 ounces, used 800 machine hours and required 250 samples. Apple Snacks produced 7,500 wholesale containers and 40,000 snack packs of Garden Straws.
Required - Calculate the indirect cost of each unit of the wholesale containers and the snack packs using the activity-based cost allocation rates.