Acct434 Advanced Cost Management: Week 1 Homework (Aunt Ethel’s Fancy Cookie Company and ABM)

Acct434 Advanced Cost Management Week 1 Activity Based Costing Problem 1: Aunt Ethel’s Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company. Based on budgetary projections, the information listed below is available: Macaroon Sugar ButtercreamProjected sales in units 500,000 800,000 600,000PER UNIT data: Selling price $0.80 $0.75 $0.60Direct materials $0.20 $0.15 $0.14Direct labor $0.04 $0.02 $0.02Hours per 1000-unit batch: Direct labor hours 2.00 1.00 1.00Oven hours 1.00 1.00 1.00Packaging hours 0.50 0.50 0.50 Total overhead costs and activity levels for the year are estimated as follows: Activity Overhead costs Activity levels Direct labor 2,400 hours Oven 210,000 1,900 oven hours Packaging 150,000 950 packaging hours $360,000 Questions: 1. Determine the activity-cost-driver rate for packaging costs (3 points). 2. Using the ABC system, for the sugar cookie, compute the estimated overhead costs per thousand cookies (3 points). 3. Using the ABC system, for the sugar cookie, compute the estimated operating profit per thousand cookies (3 points).4. Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per thousand cookies (3 points). 5. Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated operating profit per thousand cookies (3 points).6. Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why? (3 points). Problem 2:What is activity-based management and how can it be used to improve the profitability of a company? (12 points).