Reference no: EM132721716

To start on this one, you will need to calculate the labor time consumed by different products for each manufacturing process (you will need to account for time consumed per run and number of runs). The labor time consumed by the products in various processes may not be the same as the labor hours allocated to the process or labor capacity. This is because resource capacity of supplying departments may be greater than resources consumed by the products - thus, it is necessary to use capacity cost rates. Capacity cost rates are calculated as the ratio of each process cost to practical capacity. The application of capacity cost is to reduce the cost of products or customers by identifying the cost of idle and unused resources that could be allocated to products (this is a principal calculation in time-driven ABC system). In your table, you can compare the excess resources available for each process and the cost driver rate based on practical capacity to see that capacity cost rate is much lower than the ABC cost driver rate.

Problem 1: Product costs consist of raw materials, labor, and overhead. What is the gross margin of Kumar Sweets from the 12 sample products? Which products are making a loss? A profit? Are any products below the overall profitability of the firm?

Problem 2: Calculate the product profitability of sweets sold by Kumar Sweets recognizing the idle capacity.