Falcon Crest Corporation Manufactures Two Brands of Wine: Regular and Extra

question 35

Essay

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	65,000
Number of gallons produced	450,000	90,000

The 335,000 pounds of material had a total cost of $753,750.Direct labor is $21 per hour.
The company has total overhead production costs of $2,212,125.
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	$450,000	60,000
Production Setup	# of setups	$248,625	3,825
Material Handling	Pounds of Materials	$703,500	335,000
Storage Costs	# of gallons produced	$810,000	540,000

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?

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