Solved by verified expert :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:Buttercream Macaroon SugarProjected 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 1,000-unit batch:Direct labor hours 2 1 1Oven hours 1 1 1Packaging hours 0.5 0.5 0.5Total overhead costs and activity levels for the year are estimated as follows:Activity Overhead costs Activity levelsDirect labor 2,400 hoursOven $120,000 1,900 hoursPackaging $150,000 950 hoursTotal $270,000Questions:1.Determine the activity-cost-driver rate for packaging costs (three points).1.Using the ABC system, for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).1.Using the ABC system, for the sugar cookie, compute the estimated operating profit per 1,000 cookies (three points).1.Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).2.Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated operating profit per 1,000 cookies (3 points).3.Explain the difference between the profits obtained from the traditional system and the ABC system. Which system provides a better estimate of profitability? Why? (three points).Problem 2: What is activity-based management and how can it be used to improve the profitability of a company? (12 points)
