Mercia Chocolates produces gourmet chocolate products with no preservatives. Any
ID: 2536778 • Letter: M
Question
Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia’s single plant has the capacity to make 91,000 packages of chocolate annually. Currently, Mercia sells to only two customers: Vern’s Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores). Vern’s orders 46,000 packages and Mega Stores orders 16,000 packages annually. Variable manufacturing costs are $12 per package, and annual fixed manufacturing costs are $516,000.
The gourmet chocolate business has two seasons, holidays and non-holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months. Vern’s orders the same amount each month, so Vern’s orders 15,600 packages during the holidays and 31,600 packages in the non-holiday season. Mega Stores only carries Mercia’s chocolates during the holidays.
a. Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred Product Cost Non-holiday Holiday per package per package b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it. (Rounc Product Cost Non-holiday Holiday per packageExplanation / Answer
Packages Manufactured:
Answer a
Answer b
Holiday Non Holiday Verns 15,600 31,600 Mega Store 16,000 - Total 31,600 31,600