Asked by Pierre Chew Seng Yaw on Jul 17, 2024
Verified
Assume New Belgium Brewing Company manufactures and distributes three types of beer and that estimated per unit product costs and related information for the next year are shown in the following table:
a.If New Belgium Brewing Company uses a plantwide overhead rate based on machine hours,what is the total product cost per unit of Cocoa Mole Ale?
b.Blue Paddle is a traditional brew made in large quantities with long production runs.Somersault is a seasonal beer made in small batches.Cocoa Mole Ale is a specialty beer also made in small batches.Which of the overhead allocation methods studied in this chapter would you recommend that New Belgium Brewing Company use and why?
Plantwide Overhead Rate
A single overhead absorption rate used throughout a manufacturing plant, applied to all jobs or products regardless of the department in which they were produced.
Machine Hours
A measure of production time, quantifying the hours a machine is operated in the manufacturing process.
New Belgium Brewing Company
An American brewery known for its craft beers and environmental sustainability practices, including employee ownership and energy-efficient operations.
- Attain insight into and perform arithmetic operations on activity-based costing.
- Explore how allocating overhead costs affects the pricing and financial performance of products.
- Differentiate between various overhead allocation methods and their suitability for different types of production processes.
Verified Answer
Total overhead:
= ($12,000 x 30 units)+ ($16,000 x 20 units)+ ($20,000 x 10 units)= $880,000
Total machine hours:
= (30 units x 30 MH)+ (20 units x 40 MH)+ (10 units x 50 MH)= 2,200 MH
Plantwide overhead rate based on MH: $880,000/2,200 MH = $400 per MH
Total product cost per unit of Cocoa Mole Ale:
$750,000 DM + $6,000 DL + (50 MH x $400 per MH)MOH = $776,000 cost per unit of Cocoa Mole Ale
b.Activity-based costing is particularly useful in companies like New Belgium Brewing where different products require different processes and varying levels of overhead.
Learning Objectives
- Attain insight into and perform arithmetic operations on activity-based costing.
- Explore how allocating overhead costs affects the pricing and financial performance of products.
- Differentiate between various overhead allocation methods and their suitability for different types of production processes.
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