Question

Salty Sensations Snacks Company manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period:

Factory depreciation $13,645
Indirect labor 33,817
Factory electricity 3,856
Indirect materials 8,010
Selling expenses 18,985
Administrative expenses 10,679
Total costs $88,992

Factory overhead is allocated to the three products on the basis of processing hours. The products had the following production budget and processing hours per case:

Budgeted Volume (Cases) Processing Hours Per Case
Tortilla chips 1,500 0.15
Potato chips 3,600 0.12
Pretzels 2,700 0.10
Total 7,800

Required:
a. Determine the single plant-wide factory overhead rate.
b. Use the factory overhead rate in (a) to determine the amount of total and per-case factory overhead allocated to each of the three products under generally accepted accounting principles.

Answer 1

Answer:

a. $64 per hour

b. Tortilla chips = $9.60, Potato chips = $7.68 , Pretzels = $6.40

Explanation:

Plant-wide factory overhead rate = Budgeted Overhead / Budgeted Activity

Calculation of Budgeted Overheads :

Hint : Consider only Indirect Manufacturing Costs

Factory depreciation    $13,645

Indirect labor                 $33,817

Factory electricity          $3,856

Indirect materials            $8,010

Total                             $59,328

Calculation of Budgeted Hours :

Tortilla chips (1,500 × 0.15)  = 225

Potato chips (3,600 × 0.12)  = 432

Pretzels (2,700 × 0.10 )        = 270

Total                                     = 927

Plant-wide factory overhead rate =  $59,328 / 927

                                                       =  $64 per hour

Factory overhead allocated to each of the three products :

Tortilla chips  (0.15  × $64) = $9.60

Potato chips  0.12  × $64) = $7.68

Pretzels  (0.10 × $64) = $6.40