| Besto Company Case and Data Schedules |
| Besto Company Case Background |
| Besto Company manufactures a wide range of cheese. |
| Twenty years ago Besto Company had only three product lines (Cheddar, Edam, and Gouda).
The company produced large volumes of each product, using very simple machinery and a lot of hard work. |
| The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines (Feta, Mascarpone, and Queso Blanco). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins. |
| The company has undergone some dramatic changes within the business over the past 15 years. The factory had seen the introduction of computer-controlled pasteurizer and culturing machines and curing facilities that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy. |
| Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products. |
| The company's management accountant had become concerned about the conventional product costing system at Besto Company. The manufacturing people were also sure that the costing system was distorting product costs. |
| Schedule 1 |
| | | Resource Cost Categories and Resource Drivers |
| | | Cost category | Cost | Resource driver |
| | | Wages | $6,750,000 | Number of employees |
| | | Building costs | $1,800,000 | Floor space |
| | | Depreciation | $1,200,000 | Machine hours |
| | | Consumables | $60,000 | Orders placed by centre |
| | | Energy | $252,000 | Kilowatt hours used |
| | | Other | $60,000 | Number of employees |
| | | Total | $10,122,000 |
| | | - All Wages Costs can be considered indirect costs for the purposes of this case.
- The current conventional approach to allocation of overheads is to use a plantwide rate. |
| | | - The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity. |
| Schedule 2 |
| | | Resource drivers consumed by activity centres |
| Cost categories (resource drivers) | | | Wages | Building costs | Depreciation | Consumables | Energy | Other |
| Activity centres | | | (employees) | (m2) | (machine hours) | (orders) | (kilowatt hours) | (employees) |
| New Product Development | | | 3 | 300 | | 10 | 10000 | 3 |
| Sales and distribution | | | 12 | 600 | | 10 | 12000 | 12 |
| Inspecting | | | 2 | 600 | | 10 | 12000 | 2 |
| Pasteurizing | | | 30 | 1,200 | 4800 | 180 | 240000 | 30 |
| Culturing | | | 30 | 1,200 | 6000 | 120 | 360000 | 30 |
| Curing | | | 24 | 1,200 | 1200 | 180 | 240000 | 24 |
| Administration | | | 12 | 600 | | 20 | 10000 | 12 |
| Corporate management | | | 6 | 400 | | 10 | 10000 | 6 |
| Total quantity of resource drivers across all activity centres | | | 119 | 6,100 | 12000 | 540 | 894000 | 119 |
| * All Calculations to 4 decimal places |
| Schedule 3 |
| | | | Activities and resource drivers used - Inspecting |
| Activity | | | Percentage of labour time | Percentage of floor space | Percentage of orders placed |
| Inspect milk | | | 30% | 50% | 0% |
| Disposal of substandard milk | | | 10% | 10% | 30% |
| Move to pasteurizing room | | | 10% | 10% | 0% |
| Inspect finished products | | | 30% | 10% | 0% |
| Disposal of substandard product | | | 10% | 10% | 30% |
| Reports to Health Dept | | | 10% | 10% | 40% |
| Total | | | 100% | 100% | 100% |
| * All Calculations to 4 decimal places |
| | | There is no significant use of machinery (and therefore no depreciation) in this activity |
| | | In this activity centre, consumables are used by three activities in the proportions given, and energy (kw) is consumed by all activities in the same proportions to the allocated floor space. |
| Schedule 4 |
| List of activities |
| Activity | | | Activity cost | Activity driver | Annual quantity of activity driver |
| Corporate management | | | $340,336 | Assigned directly to products |
| Process receivables | | | | No. of invoices | 6,000 | invoices |
| Process payables | | | | No. of purchase orders | 3,000 | purchase orders |
| Production planning | | | | No. of production schedules | 1,200 | production schedules |
| Reports to Health Dept | | | ?? | No. of reports | 1,200 | reports |
| Process sales order | | | | No. of sales orders | 4,800 | sales orders |
| Dispatch sales order | | | | No. of dispatches | 3,000 | dispatches |
| New Product Development | | | $170,168 | Assigned directly to new products lines |
| Inspect milk | | | ?? | No. of batches | 1,200 | batches |
| Disposal of substandard milk | | | ?? | No. of batches | 1,200 | batches |
| Move to pasteurizing room | | | ?? | No. of batches | 1,200 | batches |
| Set up pasteurizer | | | | No. of batches | 1,200 | batches |
| Weigh and sort ingredients | | | | No. of batches | 1,200 | batches |
| Load pasteurizer | | | | No. of litres | 240,000 | litres |
| Operate pasteurizer | | | | No. of batches | 1,200 | batches |
| Unload and Clean pasteurizer | | | | No. of batches | 1,200 | batches |
| Move to culturing room | | | | No. of batches | 1,200 | batches |
| Set up scales | | | | No. of batches | 1,200 | batches |
| Weigh ingredients | | | | No. of batches | 1,200 | batches |
| Load culturing vats | | | | No. of batches | 1,200 | batches |
| Coagulate, Drain and Scald | | | | No. of litres | 240,000 | litres |
| Drain and clean vats | | | | No. of batches | 1,200 | batches |
| Move to curing room | | | | No. of litres | 240,000 | litres |
| Pack and pressing | | | | No. of products | 960,000 | products |
| Setup curing room | | | | No. of trays | 19,200 | trays |
| Move to curing room | | | | No. of trays | 19,200 | trays |
| Cure products | | | | No. of trays | 19,200 | trays |
| Unload curing room | | | | No. of trays | 19,200 | trays |
| Inspect finished products | | | ?? | No. of trays | 19,200 | trays |
| Disposal of substandard product | | | ?? | No. of trays | 19,200 | trays |
| Move to truck | | | | No. of trays | 18,240 | Finished trays |
| * All Calculations to 4 decimal places | | | | “??” indicates that these figures must be calculated. |
| Schedule 5 |
| Cheddar |
| Activities consumed | | | Annual quantity of activity driver |
| Corporate management | | | $93,065 | Assigned directly to products |
| Process receivables | | | 600 | invoices |
| Process payables | | | 200 | purchase orders |
| Production planning | | | 160 | production schedules |
| Reports to Health Dept | | | 160 | reports |
| Process sales order | | | 600 | sales orders |
| Dispatch sales order | | | 500 | dispatches |
| New Product Development | | | $0 | Assigned directly to new products lines |
| Inspect milk | | | 160 | batches |
| Disposal of substandard milk | | | 160 | batches |
| Move to pasteurizing room | | | 160 | batches |
| Set up pasteurizer | | | 160 | batches |
| Weigh and sort ingredients | | | 160 | batches |
| Load pasteurizer | | | 48,000 | litres |
| Operate pasteurizer | | | 160 | batches |
| Unload and Clean pasteurizer | | | 160 | batches |
| Move to culturing room | | | 160 | batches |
| Set up scales | | | 160 | batches |
| Weigh ingredients | | | 160 | batches |
| Load culturing vats | | | 160 | batches |
| Coagulate, Drain and Scald | | | 48,000 | litres |
| Drain and clean vats | | | 160 | batches |
| Move to curing room | | | 48,000 | litres |
| Pack and pressing | | | 192,000 | products |
| Setup curing room | | | 1,920 | trays |
| Move to curing room | | | 1,920 | trays |
| Cure products | | | 1,920 | trays |
| Unload curing room | | | 1,920 | trays |
| Inspect finished products | | | - | trays |
| Disposal of substandard product | | | - | trays |
| Move to truck | | | 1,920 | Finished trays |
| Direct Materials | | | $2 | per litre
Assigned directly to products |
| Current Market Selling Price | | | | per unit of product |
| Batch size | | | 1,200 |
| Annual Volume | | | 192,000 |
| * All Calculations to 4 decimal places |
| Schedule 6 |
| Mascarpone |
| Activities consumed | | | Annual quantity of activity driver |
| Corporate management | | | $11,148 | Assigned directly to products |
| Process receivables | | | 200 | invoices |
| Process payables | | | 100 | purchase orders |
| Production planning | | | 60 | production schedules |
| Reports to Health Dept | | | 60 | reports |
| Process sales order | | | 180 | sales orders |
| Dispatch sales order | | | 100 | dispatches |
| New Product Development | | | $87,165 | Assigned directly to new products lines |
| Inspect milk | | | 50 | batches |
| Disposal of substandard milk | | | 50 | batches |
| Move to pasteurizing room | | | 50 | batches |
| Set up pasteurizer | | | 50 | batches |
| Weigh and sort ingredients | | | 50 | batches |
| Load pasteurizer | | | 11,500 | litres |
| Operate pasteurizer | | | 50 | batches |
| Unload and Clean pasteurizer | | | 50 | batches |
| Move to culturing room | | | 50 | batches |
| Set up scales | | | 50 | batches |
| Weigh ingredients | | | 50 | batches |
| Load culturing vats | | | 50 | batches |
| Coagulate, Drain and Scald | | | 11,500 | litres |
| Drain and clean vats | | | 50 | batches |
| Move to curing room | | | 11,500 | litres |
| Pack and pressing | | | 24,000 | products |
| Setup curing room | | | 480 | trays |
| Move to curing room | | | 480 | trays |
| Cure products | | | 480 | trays |
| Unload curing room | | | 480 | trays |
| Inspect finished products | | | 480 | trays |
| Disposal of substandard product | | | 480 | trays |
| Move to truck | | | 460 | Finished trays |
| Direct Materials | | | $4 | per litre
Assigned directly to products |
| Current Market Selling Price | | | | per unit of product |
| Batch size | | | 500 |
| Annual Volume | | | 23,000 |
| * All Calculations to 4 decimal places |
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