.Budgeted Service Department Cost Allocation: Pricing a New Product
Fit & Active Company is adding a new diet food concentrate called Body Fit & Healthy to its line of bodybuilding and exercise products. A plant is being built for manufacturing the new product. Management has decided to price the new product based on a 100% markup on total manufacturing costs. A direct cost budget for the new plant projects that direct department costs of $7,152,500 will be incurred in producing an expected normal output of 750,000 pounds of finished product. In addition, indirect costs for Administration and Technical Supp will be shared by Body Fit & Healthy with the two exercise products divisions, Commercial Products and Retail Products. Budgeted annual data to be used in making the allocations are summarized here.
Body
Technical Commercial Retail Fit &
Administration Supp Products Products Healthy
Number of employees 10 4 70 60 20
Amount of technical supp time (hours) 690 — 1,840 1,610 460
Direct costs are budgeted at $750,000 for the Administration Department and $500,000 for the Technical Supp Department.
Required
a. Using the step method, determine the total direct and indirect costs of Body Fit & Healthy. (Administration costs are allocated based on number of employees; Technical Supp costs are allocated based on technical supp time.)
Body Fit
& Healthy
Direct costs Answer
Indirect costs:
Technical supp Answer
Administrative support Answer
Total Answer
b. Determine the selling price per pound of Body Fit & Healthy.
Note: Round your answer to two decimal places (for example, round $8.55555 to $8.56).
$Answer per pound
