Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:
Total overhead costs and activity levels for the year are estimated as follows:
Required:
a. Using the traditional system, determine the operating profit per unit for the sugar cookie.
b. Determine the activity cost driver rate for oven costs and packaging costs.
c. Using the ABC system, for the sugar cookie:
d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Question

Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:
  Total overhead costs and activity levels for the year are estimated as follows:
  Required:
a. Using the traditional system, determine the operating profit per unit for the sugar cookie.
b. Determine the activity cost driver rate for oven costs and packaging costs.
c. Using the ABC system, for the sugar cookie:
  d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Quizplus · Accepted Answer

The Answer of Aunt Ethel's Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available:
  Total overhead costs and activity levels for the year are estimated as follows:
  Required:
a. Using the traditional system, determine the operating profit per unit for the sugar cookie.
b. Determine the activity cost driver rate for oven costs and packaging costs.
c. Using the ABC system, for the sugar cookie:
  d. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why?

Aunt Ethel's Fancy Cookie Company Manufactures and Sells Three Flavors