Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 currently has 40 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 process requires 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 have very low volumes. CBI prices its coffee at manufacturing cost plus a markup of 30%. If CBI's prices for certain coffees are significantly higher than market, adjustments are made to bring CBI's prices more into alignment with the market because customers are somewhat price conscious. For the coming year, CBI's budget includes estimated manufacturing overhead cost of $4,500,000. CBI assigns manufacturing overhead to products on the basis of direct labor- hours. The expected direct labor cost totals $600,000, which represents 80,000 hours of direct labor time. Based on the sales budget and expected raw materials costs, the company will purchase and use $6,000,000 of raw materials (mostly coffee beans) during the year. 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 $ 4.20 $ 3.20 Direct labor (0.05 hours per bag) $ 0.30 $ 0.30 (note that it takes 0.05 DLHs to make one bag of coffee - you'll need this to apply MOH using the Traditional Method) 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: Estimated Activity Estimated Activity Cost for the Activity Cost Pool Measure for the Year Year Purchase Purchasing $ 3,000 orders orders 600,000 Number of Material handling 2,500 setups S 1,120,000 setups Number of Quality control 1,000 batches $ batches 160,000 Roasting Roasting hours 1,200,000 hours Blending Blending S hours hours 1,000,000 Packaging Packaging packaging 21,000, hours S 420,000 hours S 120,000. Toasting 80,000, blending Total manufacturing overhead cost $ 4.500.000 Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. Mona Loa Malaysian Expected sales 70,000 pounds 1,500 pounds Data regarding the expected activities used by Mona Loa and Malaysian coffees are presented below. Mona Loa Malaysian Purchase Orders Setups Batches Roasting time Blending time Packaging time 5 orders 30 setups 10 batches 700 hours 350 hours 70 hours 4 orders 12 setups 4 batches 15 hours 7.5 hours 1.5 hours Part 1 of the assignment requires you to determine the cost of a unit of coffee (Mona Loa and Malaysian) using the traditional overhead allocation method. A unit of coffee is a one pound bag. The unit cost will include direct materials, direct labor, and manufacturing overhead (as determined using the predetermined overhead rate). You NEED to use Excel formulas whenever possible. Basically, the only time you will not use formulas is when you enter given information. Traditional Costing Step 1: Compute Predetermined Overhead Rate POHR: Estimated MOH: Estimated Allocation Base: DLHS Step 2: Apply MOH to 1 bag of coffee POHR: Actual Allocation Base per bag of coffee: Applied MOH per bag: DLH per bag Malaysian Step 3: Calculate Per Bag Cost of Coffee Mona Loa Direct Materials per bag Direct Labor per bag Applied MOH per bag Total Cost per bag
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started