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Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter units of Purchaseb Expected sales (in cases) 50,000 Cashew Unused Butter Capacity 10,000 $80 10,000 Selling price per case $100 Direct labor hours 40,000 . As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 Advertising costs $200,000 $70,000 *Practical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixed Variable Direct labor benefits $0 200,000 $200,000 250,000 Machine Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 *Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:

Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter units of Purchaseb Expected sales (in cases) 50,000 Cashew Unused Butter Capacity 10,000 $80 10,000 Selling price per case $100 Direct labor hours 40,000 . As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 Advertising costs $200,000 $70,000 *Practical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixed Variable Direct labor benefits $0 200,000 $200,000 250,000 Machine Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 *Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter17: Activity Resource Usage Model And Tactical Decision Making
Section: Chapter Questions
Problem 12E: Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two,...
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Keep-or-Drop: Traditional Versus Activity-Based Analysis

Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter 50,000 Cashew Unused Butter Capacity² 10,000 units of Purchaseb Expected sales (in cases) Selling price per case $100 $80 10,000 Direct labor hours 40,000 - As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 $70,000 Advertising costs $200,000 apractical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixeda Variableb Direct labor benefits $0 $200,000 250,000 Machine 200,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:
Transcribed Image Text:Keep-or-Drop: Traditional Versus Activity-Based Analysis Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Peanut Butter 50,000 Cashew Unused Butter Capacity² 10,000 units of Purchaseb Expected sales (in cases) Selling price per case $100 $80 10,000 Direct labor hours 40,000 - As needed Receiving orders 500 250 250 500 Packing orders 1,000 500 500 250 Material cost per case $55 $48 Direct labor cost per case $12 $9 $70,000 Advertising costs $200,000 apractical capacity less expected usage (all unused capacity is permanent). bIn some cases, activity capacity must be purchased in steps (whole units). These steps are provided as necessary. The cost per step is the fixed activity rate multiplied by the step units. The fixed activity rate is the expected fixed activity costs divided by practical activity capacity. Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Activity Fixeda Variableb Direct labor benefits $0 $200,000 250,000 Machine 200,000 Receiving 200,000 22,500 Packing 100,000 45,000 Total costs $500,000 $517,500 Costs associated with practical activity capacity. The machine fixed costs are all depreciation with direct labor hours as the driver. These costs are for the actual levels of the cost driver. Required:
2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin. Nutterco, Inc. Activity-Based Income Statement Peanut Butter Cashew Butter Total X X X X X X Contribution margin X Less traceable expenses: X X X X X Product margin X X Less unused activity expenses: X X X X Operating income Using ABC approach, determine whether the cashew butter product line should be kept or dropped. Dropped X X X X $ хх X X X X хх X X X XX
Transcribed Image Text:2. Prepare an activity-based segmented income statement. Use a minus sign to indicate a negative product margin. Nutterco, Inc. Activity-Based Income Statement Peanut Butter Cashew Butter Total X X X X X X Contribution margin X Less traceable expenses: X X X X X Product margin X X Less unused activity expenses: X X X X Operating income Using ABC approach, determine whether the cashew butter product line should be kept or dropped. Dropped X X X X $ хх X X X X хх X X X XX
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