Question :
Bugaboo Co. manufactures three kinds of cookies: Fluffs, Snaps and Crinkles. The production process is comparatively simple, and factory overhead costs are allocated to products using a particular plant-wide factory rate based on direct labor hours. Information for the month of May 2000, Bugaboo's first month of operations, as given:
Budgeted
Unit Volume Direct Labor
Hours per unit
Fluffs 80,000 boxes 0.10
Crinkles 60,000 boxes 0.20
Snaps 20,000 boxes 1.00
Bugaboo has budgeted direct labor costs for May at $4.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.85/unit; Snaps $0.30/unit and Crinkles $0.40/unit.
Bugaboo's budgeted overhead costs for May are:
Indirect labor $280,000
Utilities 65,000
Supplies 45,000
Depreciation 30,000
Total $420,000
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Consider that Bugaboo sells all the boxes it produces in May.
(a) Evaluate Bugaboo's plant-wide factory overhead rate for May.
(b) Determine May's product cost for each type of cookie.
(c) Does Bugaboo's use of a plant-wide factory overhead rate in any way distort May's product costs?