Question: Great Canadian Cookies Company manufactures and sells three flavors of cookies: fudge, sugar, and Buttercream. The Batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds by the company. Based on the budgetary projections, the information listed below is available:
|
|
Fudge
|
Sugar
|
Buttercream
|
|
Projected sales in unit
|
500,000
|
800,000
|
600,000
|
|
Per Unit data:
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|
Selling price
|
$0.80
|
$0.75
|
$0.60
|
|
Direct Material
|
$0.20
|
$0.15
|
$0.14
|
|
Direct Labour
|
$0.04
|
$0.02
|
$0.02
|
|
Overhead cost based on direct labour hours (traditional system)
|
$0.30
|
$0.15
|
$0.15
|
|
Hours per 1,000-unit batch:
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|
Direct labour hours
|
2
|
1
|
1
|
|
Oven hours
|
1
|
1
|
1
|
|
Packaging
|
0.5
|
0.5
|
0.5
|
Total Overhead costs and activity levels for the three year are estimated as follows:
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Activity
|
Overhead Cost
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Activity levels
|
|
Direct labour
|
|
2,400 hours
|
|
Oven
|
210,000
|
1,900 oven hours
|
|
Packing
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$150,000
|
950 packing hours
|
Required:
a) Using the traditional (simple) costing system, determine the operating profit per unit for the sugar cookies.
b) Determine the activity cost driver rate for oven costs and packaging costs.
c) Using ABC systems, for the sugar cookie:
1) Compute the estimated overhead costs per unit.
2) Compute the estimated operating profit per unit
d) Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?
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