Accounting Case Study 2 Essay

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Pages: 2
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Question 1:

Buffalo Ale
Bismarck Bock
Four Heads Stout
Direct Materials $62.60 $88.95 $89.55
Direct Labor Cost $108.00 $72.00 $78.00
Direct Labor Hours
18 Hours
12 Hours
13 Hours
Predetermined Overhead Rate 15.57/DLH
Manufacturing Overhead Cost (POHR * DLH) $280.26 $186.84 $202.41
Total Cost (DM + DL + MOH) $450.86 $347.79 $369.96
Total Bottles
528
384
432
Cost Per Bottle (Total Cost/Total Bottles) $0.85 $0.91 $0.86

Selling Price Per Bottle $1.05 $1.50 $1.40
Gross Margin (Selling Price Per Bottle-Cost Per Bottle) $0.20 $0.59 $0.54
Gross Margin Percentage (Gross Margin/Selling Price)
19%
40%
39%

Looking at the gross margin percentage in order to rank probability, we see that Bismarck (40%) is the most profitable, followed by Four Heads Stout (39%), and lastly, Buffalo Ale (19%) is the least profitable.

Question 2:

Activity
Total Activity Volume
Estimated Cost
Activity Rate (Estimated Cost/Total Activity Volume)
Fermentation Days 2,910 $38,000 $13.06
Direct Labor Hours 7,500 $7,500 $1.00
Machine Hours 82,700 $5,500 $0.07
Number of Orders 3,740 $31,250 $8.36
Number of Quality Control Inspections 4,850 $10,500 $2.16
Number of Bottles Produced 229,920 $24,000 $0.10

Activity Cost Pool

Buffalo Ale
Bismarck Bock
Four Heads Stout

Activity Rate
Activity Volume
Assigned Cost (Activity Rate*Activity Volume)
Activity Volume
Assigned Cost
Activity Volume
Assigned Cost
Fermentation Days
13.06
3
$39.18
14
$182.84
4
$52.24
Direct Labor Hours
1
18
$18.00
12
$12.00
13
$13.00
Machine Hours
0.07
110
$7.70
325
$22.75
135
$9.45
Number of Orders
8.36
2
$16.72
18
$150.48
9
$75.24
Number of Quality Control Inspections
2.16
5
$10.80
22
$47.52
8
$17.28
Number of Bottles Produced
0.1
528
$52.80
384
$38.40
432
$43.20
Total MOH Cost

$145.20

$453.99

$210.41

Direct Material Cost

$62.60

$88.95

$89.55
Direct Labor Cost

$108.00

$72.00

$78.00
Total Cost

$315.80

$614.94

$377.96
Number of Bottles

528 384 432
Total Cost Per Bottle

$0.60

$1.60

$0.87

Selling Price

$1.05

$1.50

$1.40
Gross Margin (Selling Price-Total Cost)

$0.45

-$0.10

$0.53
Gross Margin Percentage (Gross Margin/Selling Price)

43%

-7%

38%

Based on the activity based cost system, looking at each Gross Margin Percentage, Buffalo Ale is the most profitable (43%), second is Four Head Scouts with (38%), and lastly, Bismarck Bock with a gross margin percentage of (-7%).

Question 3:

ABC Method:
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