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    Best Brew Corporation

    Uploaded by

    Isabella Gimao
    The document provides production information for two beer brands (Regular and Extra Rich) including direct materials, direct labor hours, machine hours, number of setups, and gallons produced. It then calculates total production costs and unit costs using three different overhead allocation methods: 1) direct labor hours, 2) machine hours, and 3) activity-based costing. The unit costs differ across the methods because how overhead is allocated impacts the resulting unit costs. Activity-based costing provides the most accurate cost information by tracing overhead to specific activities like setups or material handling. This better information allows management to make informed decisions about pricing, product lines, and resources.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Best Brew Corporation

    Uploaded by

    Isabella Gimao
    112 views4 pages
    The document provides production information for two beer brands (Regular and Extra Rich) including direct materials, direct labor hours, machine hours, number of setups, and gallons produced. It then calculates total production costs and unit costs using three different overhead allocation methods: 1) direct labor hours, 2) machine hours, and 3) activity-based costing. The unit costs differ across the methods because how overhead is allocated impacts the resulting unit costs. Activity-based costing provides the most accurate cost information by tracing overhead to specific activities like setups or material handling. This better information allows management to make informed decisions about pricing, product lines, and resources.

    Original Description:

    Homework in Cost Accounting

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    The document provides production information for two beer brands (Regular and Extra Rich) including direct materials, direct labor hours, machine hours, number of setups, and gallons produced. It then calculates total production costs and unit costs using three different overhead allocation methods: 1) direct labor hours, 2) machine hours, and 3) activity-based costing. The unit costs differ across the methods because how overhead is allocated impacts the resulting unit costs. Activity-based costing provides the most accurate cost information by tracing overhead to specific activities like setups or material handling. This better information allows management to make informed decisions about pricing, product lines, and resources.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    112 views4 pages

    Best Brew Corporation

    Uploaded by

    Isabella Gimao
    The document provides production information for two beer brands (Regular and Extra Rich) including direct materials, direct labor hours, machine hours, number of setups, and gallons produced. It then calculates total production costs and unit costs using three different overhead allocation methods: 1) direct labor hours, 2) machine hours, and 3) activity-based costing. The unit costs differ across the methods because how overhead is allocated impacts the resulting unit costs. Activity-based costing provides the most accurate cost information by tracing overhead to specific activities like setups or material handling. This better information allows management to make informed decisions about pricing, product lines, and resources.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Regular Extra Rich Total

    Direct materials in pounds 225,000 110,000 335,000


    Direct labor hours 45,000 65,000 110,000
    Machine hours 36,000 24,000 60,000
    Number of setups 1,450 2,375 3,825
    Number of gallons produced 450,000 90,000 540,000

    The 335,000 pounds of material had a total cost of 753,750 Direct labor is

    a) If Best Brew Corporation applies factory overhead using direct labor hours, compute the total production cost an
    Regular Extra Rich
    Direct materials 506,250 247,500
    Direct labor 945,000 1,365,000
    Overhead 904,960.23 1,307,164.77
    Total production costs 2,356,210.23 2,919,664.77
    Gallons produced 450,000 90,000
    Unit cost 5.2360 32.4407

    b) If Best Brew Corporation applies factory overhead using machine hours, compute the total production cost and
    Regular Extra Rich
    Direct materials 506,250 247,500
    Direct labor 945,000 1,365,000
    Overhead 1,327,275 884,850
    Total production costs 2,778,525 2,497,350
    Gallons produced 450,000 90,000
    Unit cost 6.1745 27.7483

    c) Assume that Best Brew Corporation has established the following activity centers, cost drivers, and costs to
    Cost Pool Cost Driver Cost Volume
    Equipment Maintenance # of machine hours 450,000 60,000
    Production Setup # of setups 248,625 3,825
    Material Handling Pounds of Materials 703,500 335,000
    Storage Costs # of gallons produced 810,000 540,000

    Cost Pool Cost Cost Driver Regular


    Equipment Maintenance 450,000 60,000 7.50 270,000
    Production Setup 248,625 3,825 65.00 94,250
    Material Handling 703,500 335,000 2.10 472,500
    Storage Costs 810,000 540,000 1.50 675,000
    Total 1,511,750
    Gallons produced 450,000
    Overhead per Unit 3.36

    Regular Extra Rich


    Direct materials 506,250 247,500
    Direct labor 945,000 1,365,000
    Overhead 1,511,750 700,375
    Total production costs 2,963,000 2,312,875
    Gallons produced 450,000 90,000
    Unit cost 6.5844 25.6986

    d) Explain why the unit cost for each model is different across the three methods of overhead application. How

    The unit cost is different for each cost model because different methods of allocation were used for overheads, which results to
    overhead was simply allocated to direct labor hours or machine hours. These methods can result to the unit costs being too hig
    is activity-based costing, on the other hand, shows a more accurate measurement of each direct costs relating to each product
    maintenance as opposed to the Extra Rich brand which requires more production setup. Because accurate costs are reflected,
    regards to decision making on which products to continue, which needs higher sales price, and the like.
    21 per hour. The company has total overhead production costs of 2,212,125

    mpute the total production cost and the unit cost for each brand.

    pute the total production cost and the unit cost for each brand.

    centers, cost drivers, and costs to apply factory overhead.

    Extra Rich
    180,000
    154,375
    231,000
    135,000
    700,375
    90,000
    7.78
    hods of overhead application. How can this information benefit the organization?

    used for overheads, which results to different unit costs. In the first and second method, the
    esult to the unit costs being too high or too low for each product. Using the third method, which
    rect costs relating to each product. It shows that the Regular brand requires more equipment
    cause accurate costs are reflected, the management can make more accurate decisions with
    nd the like.

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