PROBLEMS TO BE SOLVED:

1. Exotic Chocolate Company produces baking chocolate for use by commercial

organizations. The company is analyzing its operations in preparation for reconfiguring its factory
setup.

Currently, each batch of chocolate requires the following processes:

Function Time (Minutes)

Receiving ingredients from vendors 90
Transporting ingredients to stockroom 100
Ingredient storage 6,400
Transporting ingredients to production area 75
Mixing ingredients 400
Cooking ingredients 180
Cooling chocolate 90
Packaging chocolate 160
Moving finished goods to warehouse 105
Storing finished goods in warehouse 20,500
Moving finished goods to trucks 150

a) Calculate the total cycle time necessary to manufacture a batch of chocolate.

b) Identify the value-added functions
c) Calculate the manufacturing cycle efficiency (MCE) of this process.
d) Assume that a management consultant has established a goal that Exotic Chocolate Company
increase its MCE to 5 percent or greater. Identify three possible areas in which the company could
reduce its cycle time.

2. Brewer Corporation would like to institute an activity-based costing system to allocate

overhead to its products. The company's Shipping Department incurs costs of P750,000 per year and
has nine employees. The Shipping Department has determined that three major activities that occur
during the year.

Allocation # of Total
Activity Measure People Cost
Reviewing sales invoices # of sales invoices 2 P175,000
Initiating shipping orders # of shipping orders 3 P270,000
Making phone calls # of phone calls 4 P330,000

During the year, 60,000 phone calls were made in the department; 25,000 sales invoices were
reviewed; and 15,000 shipments were initiated. Product 101 required 300 phone calls, 225 sales
invoice reviews, and 175 shipping orders. Product 102 required 400 phone calls, 500 sales invoice
reviews, and 350 shipping orders.

a. Determine the amount of Shipping Department cost that should be assigned to each
of these products.
b. Determine Shipping Department cost per unit if 2,500 units of Product 101 and 5,000
units of Product 102 were sold during the year.

© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
 3. Efficient Electronics Corporation produces two types of electronic data organizers:
basic and deluxe. The following information about the production process is available:

Basic Deluxe
Number produced 900,000 500,000
Machine hours 75,000 30,000
Inspection hours 9,000 45,000
Revenues P63,000,000 P45,000,000
Direct costs P38,000,000 P31,000,000

Total factory overhead is P10,000,000. Of this overhead, P4,000,000 is related to utilities and the
remainder is related to quality control.

a. Determine the total overhead cost assigned to each type of data organizer using machine hours as
the allocation base. Calculate the gross profit per unit for each product.

b. Determine the total overhead cost assigned to each type of data organizer if overhead is assigned
using allocation bases appropriate to the overhead costs. Calculate the gross profit per unit of each
product.

c. Explain why the unit cost for each model is different between the two methods of allocation.

4. Falcon Crest Corporation manufactures two brands of wine: Regular and Extra Rich
Below is the current year production data for the company:

Regular Extra Rich

Direct material in pounds 225,000 110,000
Direct labor hours 45,000 65,000
Machine hours 36,000 24,000
Number of setups 1,450 2,375
Number of gallons produced 450,000 90,000

The 335,000 pounds of material had a total cost of P753,750. Direct labor is P21 per hour.
The company has total overhead production costs of P2,212,125.

a. If Falcon Crest Corporation applies factory overhead using direct labor hours, compute the total
production cost and the unit cost for each brand

b. If Falcon Crest Corporation applies factory overhead using machine hours, compute the total
production cost and the unit cost for each brand.

c. Assume that Falcon Crest Corporation has established the following activity centers, cost drivers,
and costs to apply factory overhead.

Cost Pool Cost Driver Cost Volume

Equipment Maintenance # of machine hours P450,000 60,000
Production Setup # of setups P248,625 3,825
Material Handling Pounds of Materials P703,500 335,000
Storage Costs # of gallons produced P810,000 540,000

© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Compute the total cost and the unit cost for each brand.

d. Explain why the unit cost for each model is different across the three methods of overhead
application. How can this information benefit the organization?

© 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.