South Dakota Microbrewery Case

Group 9:
1. Hong ng Hng
2. L Qun
3. Phm Hng Vn
4. L Th THu Trang
5. Ngu!n Qu"nh Loan
#. Trng Hong $%n
&. Tr'n Th H(ng Phng
). Ngu!n T*%n +,
Question 1:
a. Plant-wide allocation base syste
Predetermined overhead rate =
hours - labor direct 7500
$116,750
=$15.57 per direct labor-hours
Product cost estiate
Buffalo le Bismarc! Boc! "our #eads $tout
%irect material
cost &1'
6(.60 )).*5 )*.55
%irect labor cost
&('
10).00 7(.00 7).00
%irect labor
hours&+'
1) hrs 1( hrs 1+ hrs
Predetermined
overhead rate &,'
$15.57 per %-#
.anufacturin/
0verhead cost &5'
= &+' 1 &,'
()0.(6 1)6.), (0(.,1
2otal cost
&6' = &1'3&('3&5'
,50.)6 +,7.7* +6*.*6
2otal bottles &7' 5() +), ,+(
Cost per bottle
!"# $ !%# & !'#
()."* ().91 ()."%
b. +cti,ity-based cost syste
2he activit4 rates for the activit4 cost pools are5
ctivit4 2otal activit4
volume &1'
6stimated cost &(' ctivit4 rate &+'=&('7&1'
"ermentation %a4s (,*10 +),000 $1+.067da4
%irect -abor #ours 7,500 7,500 $1.007hour
.achine #ours )(,700 5,500 $0.077hour
8umber of 0rders +,7,0 +1,(50 $).+67order
8umber of 9ualit4
:ontrol ;nspections
,,)50 10,500 $(.167time
8umber of Bottles
Produced
((*,*(0 (,,000 $0.107bottle

-nit product cost applied to acti,ity-based cost syste:
ctivit4 cost pool
Buffalo le Bismarc! Boc! "our #eads $tout
ctivit4
<olume
ssi/ned
cost
ctivit4
<olume
ssi/ned
cost
ctivit4
<olume
ssi/ned
cost
"ermentation %a4s
&$1+.067da4'
+ +*.1) 1, 1)(.), , 5(.(,
%irect -abor #ours
&$1.007hour'
1) 1).00 1( 1(.00 1+ 1+.00
.achine #ours
&$0.077hour'
110 7.70 +(5 ((.75 1+5 *.,5
0rders
&$).+67order'
( 16.7( 1) 150.,) * 75.(,
9ualit4 :ontrol
&$(.167time'
5 10.)0 (( ,7.5( ) 17.()
Bottle
&$0.107bottle'
5() 5(.)0 +), +).,0 ,+( ,+.(0
2otal manufacturin/
overhead cost
- $1,5.(0 - $,5,.** - $(10.,1
%irect material cost &1' - 6(.60 - )).*5 - )*.55
%irect labor cost &(' - 10).00 - 7(.00 - 7).00
.otal Cost - (/1*.") - (%10.90 (/''.9%
8umber of bottles - 5() - +), - ,+(
Cost per bottle - ().%) - (1.%) - ().""
Question 1: +d,anta2es and disad,anta2es o3 each syste 3or SDM:
2he plant-=ide allocation
based on direct labor hours
2he activit4-based cost s4stem
dvanta/es
- $imple
- 6as4 to calculate
- pplicable to small-
si>ed companies =ith a small
number of product lines
- 2he estimated unit
price is closel4 related to the
real value
- pplicable to bi/
companies =ith lar/e number
of product lines
%isadvanta/es
- ;naccurate because
different products have
different level of resource
depreciation ? the estimated
unit price does not reflect
e1actl4 the real value
- :omplicated
calculation on unit price
Question /:
1. Plant-wide allocation base odel
2otal net income = $(6,,00 3 $(7,1)7 3 $(7,**, = $)1,51,
Buffalo le Bismarc! Boc! "our heads $tout
61pected
batches sold &1'
(50 1(0 1(0
8umber of
Bottles per
Batch &('
5() +), ,+(
61pected
Bottles sold
&+' = &1' 1 &('
1+(,000 ,6,0)0 51,),0
:ost per bottle $0.)5 $0.*1 $0.)6
$ellin/ price
per bottle &,'
1.05 1.50 1.,0
8et income per
bottle
0.(0 0.5* 0.5,
8et income per
product
$(6,,00 $(7,1)7 $(7,**,
(. +4C odel
2otal net income = $5*,,00 @ $,,60) 3 $(6,*57 = )1,7,*
Question 0: Ahat price should $outh %a!ota .icrobre=er4 char/e for each of its three
productsB Custif4 4our ans=er =ith supportin/ ar/uments and anal4sis.
1. :urrent situation
;n accordance =ith the information mentioned in the case, =e have collected the
outstandin/ data and the su//ested solutions belo=5
-Buffalo le is sold primaril4 to bars in colle/e to=n that order fairl4 lar/e shipments
and some beers prices are fluctuatin/ substantiall4. "urthermore, le prices have been
fallin/ throu/hout the mar!et. 0n the other hand, the leDs sellin/ price is hi/h enou/h to
/ain profit. 2herefore, $1.05 is a reasonable price to the mar!et.
- Ahen it comes to the second product, Bismarc! Boc!, =e have found that there =as no
apparent mar!et response to 10E increase in price of this beer. ;n addition, the sellin/
price is lo=er than the cost. #ence, =e mi/ht set a ne= price =hich is 15 or (0E hi/her
than former one. ;t should be
= E 1(0
E 110
5 . 1 $
x
= $1.6, per bottle. #o=ever, =e have to
!eep an e4e on feedbac!s from the mar!et.
Buffalo le Bismarc! Boc! "our heads $tout
61pected
batches sold &1'
(50 1(0 1(0
8umber of
Bottles per
Batch &('
5() +), ,+(
61pected
Bottles sold
&+' = &1' 1 &('
1+(,000 ,6,0)0 51,),0
:ost per bottle $0.60 $1.60 $0.))
$ellin/ price
per bottle &,'
1.05 1.50 1.,0
8et income per
bottle
0.,5 &0.1' 0.5(
Product mar/in $5*,,00 $&,,60)' $(6,*57
- Ae should ma!e no chan/e in the price of "our #eads $tout due to no related
si/nificant data and the price is in the practical and profitable level.
Question *:
Product cost estiate usin2 +4C odel
- 2he /iven table sho=s us the problem in pricin/ strate/4 of $%. that the sellin/ price
of Bismarc! Boc! is lo=er than the cost. 2herefore, =e should increase the price in a
/entle level in order to prevent ne/ative responses from the mar!et.
- Ae should have a consideration in reducin/ the Fuantit4 of Bismarc! Boc! produced
due to the hi/h cost per bottle in comparison =ith the others. ;f there is no increase in
demand from upscale restaurants and hotel, =e ma4 either reduce or maintain the current
production capacit4. nother reason is that the product mar/in of Bismarc! Boc! is Fuite
lo=, even thou/h =e increase the sellin/ price.
- ;t should be considered that there is a need to raise the Buffalo le Fuantit4 produced
due to the follo=in/ reasons5
3 2here is a /reat demand from the bars =ith reasonable price in compliance =ith the
maGorit4 of people.
3 :omputed cost per bottle b4 usin/ B: model is lo=er than traditional one.
dditionall4, it has the lo=est cost compared =ith the t=o others.
- Ae must not reduce the fund for the activities such as Fualit4 control, fermentation da4
because it can affect the Fualit4 of the product.
Buffalo le Bismarc! Boc! "our heads $tout
:ost per bottle $0.60 $1.60 $0.))
$ellin/ price
per bottle
$1.05 $1.50 $1.,0
Product mar/in $0.,5 &$0.1' $0.5(