Case Study One: CBI buys coffee beans from around the world and roast, blends, and packages...
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Case Study One: CBI buys coffee beans from around the world and roast, blends, and packages them for resale. The major cost is direct materials; however, there is substantial manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labor. Some of the coffees are very popular and sell in large volumes, whereas a few of the newer blends sell in very low volumes. CBI prices its coffee based on budgeted cost, including allocated overhead, plus a markup on cost of 30%. Data for 2023 budget include manufacturing overhead of $3,00,000, which has been allocated on the basis of each product's budgeted direct- labor cost. The budgeted direct-labor cost for 2023 totals $600,000. Purchases and use of materials (mostly coffee beans) are budgeted to total $6,000,000. The budgeted direct costs for one-pound bags of two of the company's products are: Direct Material Direct Labor Mauna Loa $4.20 .30 Malaysian $3.20 .30 CBI's controller believes the existing simple cost system may be providing misleading cost information. She has developed an activity-based analysis of the 2023 budgeted manufacturing costs, which is shown in the following table. Activity Purchasing Quality Control Cost-Driver-Rate Cost Driver Purchase orders $500 Material Handling Loads Moved 400 Batches 240 Roasting Blending Packaging Roasting-hours 10 Blending-hours 10 Packaging-hours 10 Budgeted data regarding the 2023 production of the Mauna Loan and Malaysian coffee follow. There will be no beginning or ending material inventory for either of these coffees. Expected Sales Purchase orders Batches Loads moved Roasting-hours Blending-hours Packaging-hours Mauna Loa 100,000 pounds Malaysian 2,000 pounds 4 4 10 4 30 12 1,000 20 500 10 100 2 Required: 1. Using CBI's simple costing system: Case Study One: CBI buys coffee beans from around the world and roast, blends, and packages them for resale. The major cost is direct materials; however, there is substantial manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labor. Some of the coffees are very popular and sell in large volumes, whereas a few of the newer blends sell in very low volumes. CBI prices its coffee based on budgeted cost, including allocated overhead, plus a markup on cost of 30%. Data for 2023 budget include manufacturing overhead of $3,00,000, which has been allocated on the basis of each product's budgeted direct- labor cost. The budgeted direct-labor cost for 2023 totals $600,000. Purchases and use of materials (mostly coffee beans) are budgeted to total $6,000,000. The budgeted direct costs for one-pound bags of two of the company's products are: Direct Material Direct Labor Mauna Loa $4.20 .30 Malaysian $3.20 .30 CBI's controller believes the existing simple cost system may be providing misleading cost information. She has developed an activity-based analysis of the 2023 budgeted manufacturing costs, which is shown in the following table. Activity Purchasing Quality Control Cost-Driver-Rate Cost Driver Purchase orders $500 Material Handling Loads Moved 400 Batches 240 Roasting Blending Packaging Roasting-hours 10 Blending-hours 10 Packaging-hours 10 Budgeted data regarding the 2023 production of the Mauna Loan and Malaysian coffee follow. There will be no beginning or ending material inventory for either of these coffees. Expected Sales Purchase orders Batches Loads moved Roasting-hours Blending-hours Packaging-hours Mauna Loa 100,000 pounds Malaysian 2,000 pounds 4 4 10 4 30 12 1,000 20 500 10 100 2 Required: 1. Using CBI's simple costing system:
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