Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows: Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.
Bugaboo's budgeted overhead costs for May are: $$\begin{array} { l r }
\text { Indirect labor } & \$ 280,000 \
\text { Utilities } & 65,000 \
\text { Supplies } & 45,000 \
\text { Depreciation } & 30,000 \
\text { Total } & \$ 420,000
\end{array}$$ Assume that Bugaboo sells all the boxes it produces in May.
a) Compute Bugaboo's plantwide factory overhead rate for May.
b) Compute the product cost in May for each type of cookie.
c) Does Bugaboo's use of a plantwide factory overhead rate in any way distort the product costs for May?

Question

Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows:  Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.
Bugaboo's budgeted overhead costs for May are: $$\begin{array} { l r } 
\text { Indirect labor } & \$ 280,000 \
\text { Utilities } & 65,000 \
\text { Supplies } & 45,000 \
\text { Depreciation } & 30,000 \
\text { Total } & \$ 420,000
\end{array}$$ Assume that Bugaboo sells all the boxes it produces in May.
a) Compute Bugaboo's plantwide factory overhead rate for May.
b) Compute the product cost in May for each type of cookie.
c) Does Bugaboo's use of a plantwide factory overhead rate in any way distort the product costs for May?

Quizplus · Accepted Answer

The Answer of Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plantwide factory rate based on direct labor hours. Information for the month of May, Bugaboo's first month of operations, follows:  Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps $0.30/unit.
Bugaboo's budgeted overhead costs for May are: $$\begin{array} { l r } 
\text { Indirect labor } & \$ 280,000 \
\text { Utilities } & 65,000 \
\text { Supplies } & 45,000 \
\text { Depreciation } & 30,000 \
\text { Total } & \$ 420,000
\end{array}$$ Assume that Bugaboo sells all the boxes it produces in May.
a) Compute Bugaboo's plantwide factory overhead rate for May.
b) Compute the product cost in May for each type of cookie.
c) Does Bugaboo's use of a plantwide factory overhead rate in any way distort the product costs for May?

Bugaboo Co Assume That Bugaboo Sells All the Boxes It Produces in Snaps