ABC and CVP Analysis: Multiple Products Good Scent, Inc., produces two colognes:
ID: 2397148 • Letter: A
Question
ABC and CVP Analysis: Multiple Products
Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:
The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours.
* All depreciation
Required:
1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round the number of break-even packages to the nearest whole number.
2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even. In your computations, round all computed amounts to the nearest cent and round the number of break-even packages to the nearest whole number.
I just need to know the cases!!! Thank you
Rose Violet Expected sales (in cases) 50,000 10,000 Selling price per case $100 $80 Direct labor hours 36,000 6,000 Machine hours 10,000 3,000 Receiving orders 50 25 Packing orders 100 50 Material cost per case $50 $43 Direct labor cost per case $10 $7Explanation / Answer
Solution 1:
Breakeven cases = Fixed cost / contribution per unit
Break-even cases of Rose = $471,429 / $32.08 = 14695 cases
Break-even cases of Violet = $78,571 / $23.40 = 3358 cases
Solution 2:
Breakeven cases = Fixed cost / contribution per unit
Break-even cases of Rose = $387,179 / $32.54 = 11898 cases
Break-even cases of Violet = $162,821 / $21.10 = 7718 cases
Allocation of overhead to product - Traditional costing Particulars Rose Violet Total Direct labor hours 36000 6000 42000 Allocation of fixed overhead $471,428.57 $78,571.43 $550,000.00 Allocation of Variable overhead $396,000.00 $66,000.00 $462,000.00 Nos of cases 50000 10000 Variable overhead cost per unit $7.92 $6.60