Coffee Bean, Inc. (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 companys predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor. Some of CBIs 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 $3,538,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $812,000, which represents 58,000 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 $ 5.00 $ 4.00 Direct labor (0.025 hours per bag) $ 0.35 $ 0.35 CBI's controller believes that the companys 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 1,790 orders $ 680,200 Material handling Number of setups 1,880 setups 902,400 Quality control Number of batches 680 batches 217,600 Roasting Roasting hours 96,900 roasting hours 1,162,800 Blending Blending hours 34,300 blending hours 343,000 Packaging Packaging hours 23,200 packaging hours 232,000 Total manufacturing overhead cost $ 3,538,000 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 112,000 pounds 1,200 pounds Batch size 8,000 pounds 300 pounds Setups 2 per batch 2 per batch Purchase order size 28,000 pounds 400 pounds Roasting time per 100 pounds 1 roasting hours 1 roasting hours Blending time per 100 pounds 0.5 blending hours 0.5 blending hours Packaging time per 100 pounds 0.1 packaging hours 0.1 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 (2a) 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.

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