Reference no: EM131870806

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.