Case - Note that cases are individual assignments and as such are expected to be completed individually. Questions on the assignment should be addressed to the instructor not to other students.
Mark's Candles makes candles for retailers and wholesalers. The company views the production as two-steps, making the candles and labeling the products for different customers. Using a Just-in-Time process Mark has managed to keep inventories at virtually 0 (this included Materials, WIP and FG accounts). Last quarter, the company incurred $350,000 in overhead costs. Based on an intense study of their company, the following activities, allocation bases, and percentages of overhead costs were determined:
Process Allocation Base Proportion of Overhead Cost
Candlemaking Number of batches processed 75%
Labeling ` Label Machine hours 25%
The number of activities and overhead is estimated at the beginning of the period to be:
Retailers Wholesalers Total
Number of batches processed 1,000 1,500 2,500
Label Machine hours 3,000 1,500 4,500
Total Est. Overhead $400,000
At the end of the quarter the following information is given:
Candlemaking Retailers Wholesalers
Candles Produced 110,000 150,000
Direct Materials Used $114,000 $87,000
Direct Labor Cost 107,500 100,000
Batches processed 1,100 1,500
Labeling Retailers Wholesalers
Candles Finished 110,000 150,000
Direct Materials Used $14,000 $17,000
Direct Labor Cost 37,500 41,000
Batches processed 1,100 1,500
Actual Total Overhead Costs $420,000
Required
A. Calculate the Predetermined Overhead for each process.
B. Calculate the Overhead assigned to each product in the processes.
C. Calculate the Total Manufacturing Costs and Per Unit Cost for each product.
D. In Mark's company there is some debate about the division of overhead costs. The Production manager of Candlemaking says the overhead should be 50-50% for the two processes.
a. Would this significantly change the unit costs of the two products? Why?
b. Assume you are the Labeling manager. Justify the current allocation with a rational argument.
E. Results should be typewritten in Excel or Word in very clear and good form. This is not a homework problem, it's a case. Write it up neatly to be turned in for grading. All supporting work should be shown as well.