California Creamery Case

(A): The full production cost (per gallon) of the Polynesian Fantasy and Vanilla products as per Will’s old costing method is as below:

Overhead calculation (taking reference of exhibit 2):

Direct Labor for Polynesian Fantasy = 1.2 ($/gallon) * 2000 gallons = $2400

Direct Labor for Vanilla = 1.2 ($/gallon) * 100000 gallons = $120000

Direct Material for Polynesian Fantasy = 2 ($/gallon) * 2000 gallons = $4000 Direct Material for Vanilla = 1.8 ($/gallon) * 100000 gallons = $180000

Overhead = 2* Direct Labor (given)

For Polynesian Fantasy = 2* 2400 = $4800

For Vanilla = 2* 120000 = $240000

| |Polynesian fantasy |Vanilla |

|Units produces |2000 |10000 |

|Direct labor cost ($) |2400 |120000 |

|Direct material cost |4000 |180000 |

|Overhead cost |4800 |240000 |

|Total cost |11200 |540000 |

|Cost./unit |5.6 |5.4 |

| | | |

B.) The full production cost (per gallon) of the Polynesian Fantasy and Vanilla products as per new costing method (Louise’s suggestion) is as below:

Calculating per unit cost from Exhibit 1, we get:

|Activity cost/unit |Budgeted cost |Driver of the activity’s |Budgeted...