Clucker Chicken Produces Several Styles of Precooked and Package Chicken

question 75

Essay

Clucker Chicken produces several styles of precooked and package chicken wings (drums,
tips, buffalo and coated with a variety of spices and sauces). Each style of wing requires different
preparation time, different cooking and draining times and different packaging. Therefore
the company management has decided to try ABC costing to better capture the manufacturing
overhead costs incurred by each style of wing. The following activities related to yearly
manufacturing overhead costs and cost drivers have been identified:

Compute the activity cost allocation rates for each activity assuming the following total estimated activity for the year: 45,000 hours preparation time, 45,000 cooking and draining hours, and 9,000,000 packages.

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Definitions:

Annual Payroll

The total amount of wages, salaries, bonuses, and other compensation paid by a business to its employees over a year.

Business Days

Days of the week excluding weekends and public holidays, typically Monday through Friday, when business operations are conducted.

Fixed Charge Coverage

A financial metric evaluating how well a company can pay off its fixed expenses, like interest and leases, using its earnings before interest, taxes, depreciation, and amortization (EBITDA).

Times Interest Earned Ratio

A measure of a company's ability to meet its interest obligations, calculated as earnings before interest and taxes divided by interest expense.