Best Brew Corporation manufactures two brands of wine: Regular and Extra Rich
Below is the current year production data for the company:
Regular Extra Rich
Direct material in pounds 225,000 110,000
Direct labor hours 45,000 65,000
Machine hours 36,000 24,000
Number of setups 1,450 2,375
Number of gallons produced 450,000 90,000
The 335,000 pounds of material had a total cost of $753,750. Direct labor is $21 per hour.
The company has total overhead production costs of $2,212,125.
a. If Best Brew Corporation applies factory overhead using direct labor hours, compute the total production cost and the unit cost for each brand
b. If Best Brew Corporation applies factory overhead using machine hours, compute the total production cost and the unit cost for each brand.
c. Assume that Best Brew Corporation has established the following activity centers, cost drivers, and costs to apply factory overhead.
Cost Pool Cost Driver Cos Volume
Equipment Maintenance # of machine hours $450,000 60,000
Production Setup # of setups $248,625 3,825
Material Handling ounds of Materials $703,500 335,000
Storage Costs # of gallons produced $810,000 540,000
Compute the total cost and the unit cost for each brand.
d. Explain why the unit cost for each model is different across the three methods of overhead application. How can this information benefit the organization?