CBI buys coffee beans from around the world and roasts, 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 at budgeted cost, including allocated overhead, plus a markup on cost of 30%. Data for 2013 budget include manufacturing overhead of $3,000,000, which has been allocated on the basis of each products budgeted direct-labor cost. The budgeted direct-labor cost for 2013 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 companys products are:

Mauna Loa Malaysian

Direct Materials $4.20 $3.20

Direct Labor .30 .30

CBIs controller believes the existing simple cost system may be providing misleading cost information. She has developed an activity-based analysis of the 2013 budgeted manufacturing costs, which is shown in the following table:

Activity Cost Driver Cost-Driver-Rate

Purchasing Purchase orders $500

Material Handling Loads moved 400

Quality Control Batches 240

Roasting Roasting-hours 10

Blending Blending-hours 10

Packaging Packaging-hours 10

Budgeted data regarding the 2013 production of the Mauna Loa and Malaysian coffee follow. There will be no beginning or ending material inventory for either of these coffees.

Mauna Loa Malaysian

Expected Sales 100,000 pounds 2,000 pounds

Purchase orders 4 4

Batches 10 4

Loads moved 30 12

Roasting-hours 1,000 20

Blending-hours 500 10

Packaging-hours 100 2

Required:

1. Using CBIs simple costing system:

a. Determine the companys 2013 budgeted manufacturing overhead rate using direct-rate cost as the single allocation base.

Manufacturing overhead allocated / Budgeted Direct Labor Cost

b. Determine the 2013 budgeted costs and selling price of 1 pound of Mauna Loa coffee and 1 pound of Malaysian coffee.

2. Use the controllers activity-based approach to estimate the 2013 cost of 1 pound of

a. Mauna Loa coffee

b. Malaysian coffee

What does ABC tell you that traditional costing does not with regard to this case study?