Starkuchen GmbH has been in the food-processing business three years. For its first two years (2006 and 2007), its sole product was raisin cake. All cakes were manufactured and packaged in 1 kg units. A normal costing system was used by Starkuchen. The two direct- cost categories were direct materials and direct manufacturing labour. The sole indirect manufacturing cost category – manufacturing overhead – was allocated to products using a units of production allocation base.
In its third year (2008) Starkuchen added a second product – layered carrot cake – that was packaged in 1 kg units. This product differs from raisin cake in several ways: