Chelsea Ginsberg
02/22/13
ACCT2301
South Dakota Microbrewery Case 1. Prepare a complete product cost estimate for Buffalo Ale, Bismark Bock an Four Heads Stout (see Exhibit 4) using: a. The plant-wide allocation based on direct-labor hours

b. An activity-based cost system
Activity rates:

Cost estimate based on activity rates:

2. For each costing method, what is the gross margin per batch for each beer label, in dollars? What is the gross margin percentage? What is the total gross margin for each beer label?
Plant-wide allocation method:

ABC method:

3. What are the advantages and disadvantages for both allocation systems in #1?
For the plant-wide allocation based on direct labor hours, the advantages include that it’s an easy method that doesn’t require much to calculate. You get the total cost simply from adding the direct material cost, direct labor cost, and manufacturing cost and divide by the number of materials (in this case, bottles). It’s easier to use for small companies, because, as a disadvantage, it can be an inaccurate method of allocation. In this particular case, each beer has different resources and processes and the estimated price probably doesn’t reflect the actual value.
As for the ABC allocation method, it takes into account the different level or resources that the other method doesn’t, making it a more accurate price. It can be used accurately for large companies as opposed to smaller companies; however its disadvantage is that it’s a very tedious method that can get complicated when trying to come up with the unit price. 4. How does the allocation cost system used affect SDM’s total net income for the upcoming year? (assume that the company produces and sells 250 batches of Buffalo Ale and120 batches each of Bismarck Bock and Four Heads Stout, and that prices and costs are shown in the case)