Nature Made Snacks produces different styles of sweet potato chips (ruffled, flat, thick cut, gourmet) for different corporate customers. Each style of sweet potato chip requires different preparation time, different cooking and draining times (depending on desired fat content), and different packaging (single serving versus bulk). Therefore, Nature Made has decided to try ABC to better capture the manufacturing overhead costs incurred by each style of chip.
Nature Made has identified the following activities related to yearly manufacturing overhead
costs:
- Preparation activity (with preparation time as an allocation base), - Cooking activity (with cooking time as an allocation base) and - Packaging activity (with number of units packed as allocation base).
The estimated manufacturing overheads for the next year are as follows: $255,000 for preparation (with 2,833 preparation hours), $464,000 for cooking (with 10,667 cooking hours) and $200,000 for packing (1,333,333 packages).
Requirements:
Compute the activity cost allocation rates for each activity.
