Reference no: EM132472064

Problem:

Opaskwayak Inc. bottles pure spring water from lakes in northern Manitoba. The lakes are on First Nations property, and the band is the majority shareholder in the company. The only cost for the water is the cost of transportation and purification. The company is very careful not to overtax the water systems when it takes water. It also ensures sustainability for the land.

Opaskwayak currently produces three different products from the spring water: still water, carbonated water, and a cranberry-flavoured carbonated version. The process for creating the various products is as follows: All products start with the piping of the water to the bottling plant. At the plant, the water undergoes a thorough distillation process. 1% of the volume is lost in the distillation process. For still water, the water is bottled at this point. For carbonated water, the water goes from this split-off point to the Carbonation department. After carbonation, a percentage of the product is bottled, and the remainder is moved to the Fruit department. In the Fruit department, the cranberries are sorted, juiced, and boiled into a syrup. The syrup is added to the carbonated water, and the final product is bottled.

The following information was reported for the most recent period:

Department	Transportation	Purification	Carbonation	Fruit	Bottling
Direct materials	-	-	$1,029,500	$320,760	$130,680
Direct labour	$87,500	$75,750	$145,000	$180,000	$218,400
Planned manufacturing overhead	$1,657,250	$560,000	$675,850	$356,000	$6,800,000
Actual manufacturing overhead	$1,754,235	$485,000	$669,880	$376,128	$6,875,000
Planned machine hours	26,200	8,800	20,000	20,000	2,496
Actual machine hours	26,208	8,850	19,500	20,100	2,496
Planned direct labour hours	5,250	5,050	10,000	12,000	10,000
Actual direct labour hours	5,650	5,000	10,050	11,990	12,000
Volume in litres	120,000,000	118,800,000	41,580,000	5,940,000	118,800,000

In the current period the following production occurred:
• 60% of the purified volume was bottled as still water.
• 35% of the purified volume was bottled as carbonated water, and the remainder was bottled as cranberry-flavoured carbonated water.

Direct labour hours is the cost driver in the Transportation and Purification departments. All other departments are driven by machine hours.

In the Fruit department, the accountant has analyzed the activities and has arrived at the following:

Activity	Cost	Driver	Volume	Cost per unit
Washing	$ 24,175	Kg of fruit	3,000,000	$0.0081
Sorting	115,000	Kg of fruit	3,000,000	0.0383
Juicing	116,150	Kg of fruit	2,950,000	0.0394
Boiling	100,675	Litres of juice	5,900,000	0.0171

For the last batch of the year, Opaskwayak processed 1,000,000 pre-purification litres with the following direct labour hours and machine hours:

Department	Direct labour hours	Machine hours
Transportation	50	221
Purification	28	75
Carbonation	95	192
Fruit	100	167
Bottling	85	20

Processing this final batch took 2,500 kilograms of cranberries, of which 2,458 kilograms remained after sorting. This produced 4,916 litres of juice. Bottling costs are allocated on the basis of volume processed. Assume that $24,520 in direct materials is added in Carbonation, $2,675 in Fruit, and $1,090 in Bottling.

Required:

Part a) Compute each department's manufacturing overhead rate, assuming that Opaskwayak uses a normal department rate based on the planned manufacturing overhead.

Part b) Calculate the total joint costs for the last batch of the year using the manufacturing overhead rates calculated in part (a).

Part c) Calculate the cost of bottling and carbonating the water and adding the fruit syrup for the last batch of the year based on the manufacturing overhead rates calculated in part (a).

Part d) Determine how much of each product was produced in the final batch based on the current production breakdown.

Part e) Using the net realizable value method and the planned amounts, as well as the amounts calculated in parts (c) and (d), allocate the joint costs of Transportation and Purification to the final batch produced.

Part f) Using the joint cost calculated in question 2e, calculate the cost of the final batch of cranberry-flavoured carbonated water using activity-based costing for the costs in the Fruit department.

Attachment:- Intermediate Management Accounting.rar