Reference no: EM132470705

Problem - 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:
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:
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:

Activity	Overhead Cost	Activity levels
Direct labour		2,400hours
Oven	210,000	1,900 oven hours
Packing	$150,000	950 packing hours

Required -

a) Using thee 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?