MBA 510 ACCOUNTING-Baker’s Delight, Inc., (BDI) has been in the food

MBA 510 ACCOUNTING-Baker’s Delight, Inc., (BDI) has been in the food

Subject: Business / Accounting
Question
Baker’s Delight, Inc., (BDI) has been in the food-processing business for three years. For its first two years
(Year 1 and Year 2), its only product was raisin cake. All cakes were manufactured and packaged in one
pound boxes. BDI used a normal costing system (actual direct material cost, actual direct labor cost, and
manufacturing overhead assigned using a predetermined overhead rate) during its first two years.
Manufacturing overhead was allocated to products using a units of production allocation base.
In its third year (Year 3), BDI added a second product — layered carrot cake — that was packaged in one
pound boxes as well. Layered carrot cake differed from raisin cake in several ways: The ingredients used in the layered carrot cake were more expensive than those of the raisin
cake. It took more direct labor time to make a one pound box of layered carrot cake. The manufacturing process for layered carrot cake was more complex. In Year 3, BDI continued to use its existing cost system where a unit of production of either type of cake was
weighted the same in allocating manufacturing overhead. Direct materials cost in Year 3 were $0.60 per
pound of raisin cake and $0.90 per pound of layered carrot cake. Direct manufacturing labor cost in Year 3
was $0.14 per pound of raisin cake and $0.20 per pound of layered carrot cake.
During Year 3, BDI sales people reported greater than expected sales of layered carrot cake and less than
expected sales of raisin cake. The budgeted and actual sales volume of Year 3 were as follows: Budgeted Volume Actual Volume Raisin cake 160,000 pounds 120,000 pounds Layered carrot cake 40,000 pounds 80,000 pounds The budgeted manufacturing overhead for Year 3 was $210,800.
At the end of Year 3, Stanley Stobe, the controller of BDI, decided to investigate how the use of an activitybased costing system would affect the product cost numbers. After consultation with operating personnel,
the single manufacturing overhead cost pool was subdivided into five activity areas. These activity areas,
their drivers, there Year 3 budgeted costs, and the driver units used per pound for each type of cake were
as follows: Activity Driver Mixing Labor time Cooking Oven time Budgeted Year 3
Activity Cos Driver Units per
Pound of Raisin
Cake Driver Units per
Pound of Layered
Carrot Cake $44,800 5 8 $61,600 2 3 Cooling Cool room time Creaming/icing Machine time Packaging Machine time $13,600 3 5 $30,000 0 3 $60,800 3 7 Required:
1. Compute the Year 3 unit cost of raisin cake and layered carrot cake with the normal costing
system that was employed during Years 1, 2, and 3.
2. Compute the Year 3 budgeted cost per driver unit of (a) mixing; (b) cooking; (c) cooling; (d)
creaming/icing; and (e) packaging.
3. Compute the Year 3 product cost per cake under the activity based costing system proposed
by Stanley Stobe. 4. Explain the differences in unit costs computed in requirements 1 and 3 above.
5. Describe three uses BDI might make of the activity-based cost numbers.