Logan Products

Logan Products

Logan Products computes its predetermined overhead rate annually on the basis of direct labor hours. At the beginning of the year, it estimated that 42,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $505,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Logan's actual manufacturing overhead for the year was $710,762 and its actual total direct labor was 42,500 hours.

Required:

Compute the company's predetermined overhead rate for the year

In addition to overfill, the manufacturing engineers expect to incur a 3% loss of raw materials during the making phase of production. In order to make a direct material cost, should I add this 3% into each material(s) used in production ?

Sales Projections

Over the past 12 months the corporation has been evaluating the product under the brand name Pop’s Cola in a Denver test market. Lacking any specific pricing expertise the company matched the on-shelf pricing of Coke and Pepsi, and determined the following sales estimates.

Sales Projection estimated Sales per year

Pops 12 pack (355 ml/12 cans) 100,000,000 Cases

Pops 2 liter 200,000,000Bottles
 

Raw material costs Pop's top secret formula

Ingredient % in Formula Cost per Liter of ingredients in $$$

Carbonated Water 73% 0,08

High Fructose Corn Syrup 11,20% 0,49

Sugas 6,30% 0,37

Carmel Color 3% 1,4

Phosphoric Acid 2,70% 0,1

Caffeine 2,10% 0,12

Citric Acid 1,10% 0,15

Cola Flavor 0,60% 4,11 

Based on a conversation with the engineering staff the 355-ml cans need to be filled at 357 ml to avoid under-pack, while 2 Liter bottles need to be filled at 2.008 Liters per bottle. In addition to overfill, the manufacturing engineers expect to incur a 3% loss of raw materials during the making phase of production. 

Based on my calculation, to determin a raw direct material cost per unit Can, my calculation is : Fluid material in each Can, cost : $ 0,0788 (assume 375 ml) 

Back to my question : To make the material fulfilled the can precisely, should I embedded this 3% potential loss by ordering more materials 3% or adding 3% of the 375 miliiter materials.... Or should I just ignore this 3% in my calculation ?  

 
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