Sweetheart Brands Packages Single-Sized Servings of Sugar and Sugar Substitute

question 98

Essay

Sweetheart Brands packages single-sized servings of sugar and sugar substitute for fast-food restaurants.The activities required to package sugar are fewer and less complex than for the sugar substitute.The direct costs of producing the two products are as follows:
$\begin{array}{lrr} &\underline{\text { Sugar } }& \underline{\text { Sugar Substitute }}\\ \text { Direct materials} &\$0.02&\$0.04\\ \text { Direct lahor } &0.04&0.08\\\end{array}$
Overhead is currently assigned to the two products based on machine hours.The following information is provided regarding overhead costs:
Required:
1)Compute the predetermined overhead rate under the current method of overhead cost allocation.How much total overhead cost will be assigned to each product under the current system?
2)Compute the three activity rates that would be used in an activity-based system.How much total overhead cost will be assigned to each product under an ABC system?
3)Assuming an ABC system to be more precise,by how much does the company's current costing system over- or undercost the products? Be specific.

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Definitions:

Nonsystematic Variance

The portion of an investment's total variance that is specific to the investment itself, not related to the overall market movements, and can be reduced by diversification.

Market Index

A statistical measure that represents the value of a section of the stock market, compiled from the prices of selected stocks to gauge market trends or portfolio performance.

Active Portfolio

An investment portfolio that is actively managed with the goal of achieving returns that outperform a specific benchmark or market index.

Distressed Firms

Companies experiencing financial difficulties, often facing bankruptcy or restructuring.