- Your company produces a fancy bag of potato chips . There are three main processes used in the chips. The first process washes and peels the potatoes. The second process slices and fries the potatoes. The third process seasons and packages the chips. The potato chips are sold in 12 oz bags (1 bag is a unit)
- Information on the direct materials is listed in table 1. Consider this information the standard. Direct labor information given in Table 2. Consider this information the standard.
- Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours. Estimated annual direct labor hours are 18,000. Calculate a predetermined OH rate (round to two decimal places if needed). Use this rate when you need to apply OH.
- Table 4 gives you the information for the last two months on the overhead cost. Use this information to determine the fixed and variable portions of the cost. (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 10 minutes of total machine time for each bag of chips (or 1/6 a machine hour per bag of chips).
Table 5 is where you will list all your production cost, separated into their fixed and variable components.
Cost-Volume-Profit (CVP) Relationships
a. Selling Price: You sell a bag of chips for $5.75
b. Breakeven point: Calculate the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost. Show your breakeven in Sales units and in Sales Dollars
c. Profit Planning: Determine the number of units you must sell to make an annual pre-tax profit using 3 assumptions concerning your net income (profit), both in sales units and sales dollars.
i. Aggressive Profit ($150,000)
ii. Conservative Profit ($25,000)
iii. Average Profit ($74,160)
a. sales budget using the information for earning an average profit for the year. You will break the budget down into the four quarters for the year. (Sales tend to be consistent each quarter, you can only sale a whole unit so round-up if necessary) Use table 6 to complete the sales budge
b. production budget for each quarter of the year (keep it in quarters; you do not need to break it down by month). You desire to keep 10% of next quarter's sales in ending inventory. Sales for Qtr 1 the following year (year 2) are expected to be 20,000 bags of chips. There is not any beginning finished goods inventory for quarter one. Use table 7 to complete the production budget.
Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8.
Actuals are in for quarter one. You sold 20% more units than you budgeted for, but price per unit was only $5.25.
a. Calculate revenue
b. Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost
Actual potato usage for quarter one was 91,245 pounds at a price of $0.48 per pound. Actual equivalent units of production (bags of chips) completed through the first process (where the potatoes are added) was 30,000. Calculate the direct materials variances for the potatoes (price, usage, and total) and indicate if these variances are favorable or unfavorable.
Actual direct labor hours for the quarter were 4,700 at an average rate of $12.00 per hour. For actual production you expected to use 4,800 direct labor hours. Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable.
For next quarter you have been asked to supply a special order of you potato chips. The non-profit organization requesting this order would like a custom bag (packaging) that will cost $0.35 instead of the normal $0.20 per bag. The request is for 5,000 bags of chips. Based on your projections you have the capacity for this order. What is the minimum price per unit and total price you would be willing to accept on this order? (You cannot afford to take this offer at a loss, but you are fine with accepting it at cost).
Determine over- or under-applied overhead and close to cost of goods sold. Actual OH cost are given in table 13 (look at #11 for actual DL hours used to apply OH). Determine the new cost of goods sold amount.
Table 1: Direct Materials
Quantity per unit
Total per unit
Table 2: Direct Labor
Hours per bag
Potato washer & peeler
Slicer & Fryer
Table 3: YEARLY OVERHEAD COSTS
Predetermined OH rate:
Table 4 - Actual Overhead cost for the last two months
Machine Hours *
*10 minutes of machine time per bag of chips (1/6 hour = 1 unit)
Table 5: Variable and Fixed Costs
COSTS Description VARIABLE Cost per unit FIXED Cost per Year
If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column.
Table 6 - Sales Budget
Table 7 - Production Budget
Process Costing - Packaging Department
Direct materials are added 90% at the beginning of the process and the remaining 10% are added when the chips are 50% complete with the packaging process. Direct labor and overhead are added evenly throughout the process.
Table 8 - Unit and cost information
4,000 (40% complete)
4,200 (30% complete)
Added during Qtr 1:
Direct Materials -- $7,840
Direct Labor - 660 hrs @ $12.00 per hour
Overhead - OH is applied based on predetermined OH rate and actual DL hours
1. Determine the number of units completed during quarter 1.
2. Compute the equivalent units using the weighted average method
3. Compute the cost per equivalent unit using the weighted average method
4. Compute the cost of goods transferred to finished goods inventory
5. Compute the ending balance in WIP, Packaging
I am having issues with Table 8, Questions 1-5. I am supposed to use the Weighted Average Method, but can't seem to figure it out. Could you please show me the steps to solve it?
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