Quesuun : Coronado Corporation produces two grades of nonalcoholic wine from grapes that it buys from California growers. It produces and sells...
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Quesuun : Coronado Corporation produces two grades of non—alcoholic wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in
600,000 5-literjugs. Coronado also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as
profitable as LiteMist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product. The LiteMist product already demands considerably more attention than the CoolDay line. Jack Eller, president and founder of Coronado, is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line and that it was always quite profitable. It wasn't until the company started
producing the more complicated LiteMist wine that the profitability of CoolDay declined. Prior to the introduction of LiteMist, the company had basic equipment, simple growing and production procedures, and virtually no need for quality
control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to sell the
same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; LiteMist requires such maintenance every 600 liters. Jack has asked the accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity—based costing. The following information was collected. CoolDay LiteMist Direct materials per liter $0.40 $1.20
Direct labor cost per liter $0.50 $0.90
Direct labor hours per liter 0.07 0.12
Total direct labor hours 210,000 36,000
Es mated Use of Cost
D ers per Product
Estimated Use of
Activity cost Pools cost Drivers Estimated Overhead Cost Drivers CoolDay LiteMist
Grape processing Cart of grapes $146,969 6,600 6,000 600
Aging Total months 752,400 6,600,000 3,000,000 3,600,000
Bottling and corking Number of bottles 297,000 900,000 600,000 300,000
Labeling and boxing Number of bottles 212,400 900,000 600,000 300,000
Maintain and inspect equipment Number of inspections 244,000 800 350 450 $1,652,769 Answer each of the following questions. V (a) I Your answer is partially correct. Try again. Under traditional product costing using direct labor hours, compute the total manufacturing cost per Ilter of both products. (Round answers to 3 decimal places, e.g. 12.250.) CoolDay LiteMist T:‘
Manufacturing cost perliter ‘ 1.37 -

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