Question

Grandy Oats has expanded its product offerings to include many varieties of organic granola. Company founders Nat Peirce and Aaron Anker know that financial success depends on cost control as well as revenue generation.

Required

1. If GrandyOats wanted to expand its product line to include organic energy bars, what activities would it need to perform that are not required for its current product lines?

2. Related to part 1, should the additional overhead costs related to new product lines be shared by existing product lines? Explain your reasoning.

Short answer

For expanding the product line the company needs to ensure to have its own organic crop production for cost control and to determine the overhead on the basis of the level of activity.

Step-by-step solution

Requirement 1

In order to expand the product line including energy bars, the company needs to grow its own crops organically. The company may also purchase them from a third party. Apart from this, the company must also associate with an outside company for manufacturing the product and to make use of their machine for production so that the existing production of the company is not hampered.

Requirement 2

For having effective cost control it is necessary to classify the different activities on a different level and then determine the cost. So in such a case if the additional overhead cost relates to the batch level activities or facility level activities then in such case those overheads must be shared by the existing product lines.