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.