Question
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 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.
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For the coming year, CBI's budget includes estimated manufacturing overhead cost of $3,000,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 50,000 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..... | $4.20 | $3.20 |
Direct labor (0.025 hours per bag)..... | $0.30 | $0.30 |
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 | 1,710 orders | $ 513,000 |
Material handling..... | Number of setups | 1,800 setups | 720,000 |
Quality control..... | Number of batches | 600 batches | 144,000 |
Roasting..... | Roasting hours | 96,100 roasting hours | 961,000 |
Blending..... | Blending hours | 33,500 blending hours | 402,000 |
Packaging..... | Packaging hours | 26,000 packaging hours | 260,000 |
Total manufacturing overhead cost..... | $3,000,000 |
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 | 2,000 pounds |
Batch size..... | 10,000 pounds | 500 pounds |
Setups..... | 3 per batch | 3 per batch |
Purchase order size..... | 20,000 pounds | 500 pounds |
Roasting time per 100 pounds..... | 1.0 roasting hours | 1.0 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 |
Please use the general ABC template to prepare a report with the similar format as depicted below.
Data | |||||
Mona Loa | Malaysian | ||||
Sales in units | ? | ? | |||
Direct materials per unit | ? | ? | |||
Direct labor-hours per unit | ? | ? | |||
Direct labor rate | $? | per DLH | |||
Estimated | |||||
Overhead | Expected Activity | ||||
Activities and Activity Measures | Cost | Mona Loa | Malaysian | Total | |
Labor related (direct labor-hours) | ? | ? | ? | ? | |
Machine setups (setups) | ? | ||||
Production orders (orders) | ? | ||||
Quality control(batchs) | ? | ||||
? | |||||
Compute the predetermined overhead rate | |||||
Estimated total manufacturing overhead (a) | ? | ||||
Estimated total amount of the allocation base (b) | ? | DLHs | |||
Predetermined overhead rate (a) (b) | ? | per DLH | |||
Compute the manufacturing overhead applied | Mona Loa | Malaysian | |||
Direct labor-hours per unit (a) | ? | DLHs | ? | DLHs | |
Predetermined overhead rate (b) | ? | per DLH | ? | per DLH | |
Manufacturing overhead applied per unit (a) (b) | ? | ? | |||
Compute traditional unit product costs | Mona Loa | Malaysian | |||
Direct materials | ? | ? | |||
Direct labor | ? | ? | |||
Manufacturing overhead applied | ? | ? | |||
Traditonal unit product cost | ? | ? | |||
Compute activity rates | Estimated | ||||
Overhead | |||||
Activities | Cost | Total Expected Activity | Activity Rate | ||
Labor related | ? | 0 | DLHs | ? | per DLH |
Machine setups | ? | 0 | setups | ? | per setup |
Production orders | ? | 0 | orders | ? | per order |
General factory | ? | 0 | MHs | ? | per MH |
Compute the ABC overhead cost per unit | Mona Loa | Malaysian | |||
Activity | Expected | Expected | |||
Activities | Rate | Activity | Amount | Activity | Amount |
Labor related | ? | ? | ? | ? | ? |
Machine setups | ? | ? | ? | ? | ? |
Production orders | ? | ? | ? | ? | ? |
General factory | ? | ? | ? | ? | ? |
Total overhead cost assigned (a) | ? | ? | |||
Number of units produced (b) | ? | ? | |||
ABC overhead cost per unit (a) (b) | ? | ? | |||
Compute the ABC unit product costs | Mona Loa | Malaysian | |||
Direct materials | ? | ? | |||
Direct labor | ? | ? | |||
ABC overhead cost per unit (see above) | ? | ? | |||
ABC unit product cost | ? | ? |
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