Case $($Algo$)[$LO$4-2,$ LO$4-3,$ LO$4-4]$

Coffee Bean, Incorporated $($CBI$),$ is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. CBI offers a large variety of different coffees that it sells to gourmet shops in one$-$pound bags. The major cost of the coffee is raw materials. However, the company$$s predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor. Some of CBI$$s coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes.

For the coming year, CBI's budget includes estimated manufacturing overhead cost of $$3,190,000.$ CBI assigns manufacturing overhead to products on the basis of direct labor$-$hours. The expected direct labor cost totals $$770,000,$ which represents $55,000$ hours of direct labor time.

The expected costs for direct materials and direct labor for one$-$pound bags of two of the company's coffee products appear below.

Mona Loa Malaysian

Direct materials $ $4\mathrm{.}70$ $ $3\mathrm{.}70$

Direct labor $(0\mathrm{.}025$ hours per bag$)$ $ $0\mathrm{.}35$ $ $0\mathrm{.}35$

CBI's controller believes that the company$$s traditional costing system may be providing misleading cost information. To determine whether or not this is correct, the controller has prepared an analysis of the year's expected manufacturing overhead costs, as shown in the following table:

Activity Cost Pool Activity Measure Expected Activity for the Year Expected Cost for the Year

Purchasing Purchase orders $1,760$ orders $ $616,000$

Material handling Number of setups $1,850$ setups $832,500$

Quality control Number of batches $650$ batches $188,500$

Roasting Roasting hours $96,600$ roasting hours $966,000$

Blending Blending hours $34,000$ blending hours $340,000$

Packaging Packaging hours $24,700$ packaging hours $247,000$

Total manufacturing overhead cost $ $3,190,000$

Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. There will be no raw materials inventory for either of these coffees at the beginning of the year.

Mona Loa Malaysian

Expected sales $100,000$ pounds $1,200$ pounds

Batch size $10,000$ pounds $400$ pounds

Setups $2$ per batch $2$ per batch

Purchase order size $25,000$ pounds $400$ pounds

Roasting time per $100$ pounds $1$ roasting hours $1$ roasting hours

Blending time per $100$ pounds $0\mathrm{.}5$ blending hours $0\mathrm{.}5$ blending hours

Packaging time per $100$ pounds $0\mathrm{.}1$ packaging hours $0\mathrm{.}1$ packaging hours

Required:

$1.$ Using direct labor$-$hours as the base for assigning manufacturing overhead cost to products, do the following:

a$.$ Determine the predetermined overhead rate that will be used during the year.

b$.$ Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffee.

$2.$ Using activity$-$based costing as the basis for assigning manufacturing overhead cost to products, do the following:

a$.$ Determine the total amount of manufacturing overhead cost assigned to the Mona Loa coffee and to the Malaysian coffee for the year.

b$.$ Using the data developed in part $(2$a$)$ above, compute the amount of manufacturing overhead cost per pound of the Mona Loa coffee and the Malaysian coffee.

c$.$ Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffee.