Assume New Belgium Brewing Company manufactures and distributes three types of beer and that estimated per unit product costs and related information for the next year are shown in the following table: ?Blue PaddleSomersaultCocoa Mole AleCost data per unit:???Direct materials$100,000$500,000$750,000Direct labor$3,600$4,800$6,000Overhead $12,000$16,000$20,000 Total product cost per unit$115,600$520,800$776,000????Machine hours per unit30 MH40 MH50 MHNumber of units produced per year30 units20 units10 unitsa. If New Belgium Brewing Company uses a plantwide overhead rate based on machine hours, what is the total product cost per unit of Cocoa Mole Ale?b. Blue Paddle is a traditional brew made in large quantities with long production runs. Somersault is a seasonal beer made
in small batches. Cocoa Mole Ale is a specialty beer also made in small batches. Which of the overhead allocation methods studied in this chapter would you recommend that New Belgium Brewing Company use and why?
What will be an ideal response?
a.
Total overhead:
= ($12,000 x 30 units) + ($16,000 x 20 units) + ($20,000 x 10 units) = $880,000
Total machine hours:
= (30 units x 30 MH) + (20 units x 40 MH) + (10 units x 50 MH) = 2,200 MH
Plantwide overhead rate based on MH: $880,000/2,200 MH = $400 per MH
Total product cost per unit of Cocoa Mole Ale:
$750,000 DM + $6,000 DL + (50 MH x $400 per MH) MOH = $776,000 cost per unit of Cocoa Mole Ale
b. Activity-based costing is particularly useful in companies like New Belgium Brewing where different products require different processes and varying levels of overhead.
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