Polzin Corporation produces two grades of wine from grapes that it buys fromCaliforniagrowers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles.
| CoolDay | LiteMist | |
| Direct materials per liter | 0.40 | 1.20 |
| Direct labor cost per liter | 0.25 | 0.50 |
| Direct labor hours per liter | 0.05 | 0.09 |
| Total labor hours | 150,000 | 27,000 |
Expected Use of Cost Drivers per Product
| Activity Cost Pool | Cost Driver | Estimated overhead | Expected Use of Cost | Drivers CoolDay | LiteMist |
| Grape processing | Cart of grapes | 145,860 | 6,600 | 6,000 | 600 |
| Aging | Total months | 396,000 | 6,600,000 | 3,000,000 | 3,600,000 |
| Botting and corking | Number of bottles | 270,000 | 900,000 | 600,000 | 300,000 |
| Maintain and inspect equipment | Number of inspections | 240,800 | 800 | 350 | 450 |
| Total estimated overhead |
$1,241,600 | ||||
Requirement:
1. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.
2. Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver).
3. Prepare a schedule assigning each activity’s overhead cost pool to each product, based on the use of cost drivers. What is the overhead cost per liter?
4. Compute the total manufacturing cost per liter for both products under ABC.
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