Answered step by step
Verified Expert Solution
Link Copied!

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-pund 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 their 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 the 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 $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. 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 cost 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 overthead cost, 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.

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 hour

1.0 hour

Blending time per 100 pounds

0.5 hour

0.5 hour

Packaging time per 100 pounds

0.1 hour

0.1 hour

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 Mona Loa coffee and one pound of Malaysian Coffee.
2.Using activity-based costing as the basis for asssigning 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 (2A) above, compute the amount of manufacturing overhead cost per pound of Mona Loa coffee an Malaysian coffee. Round all computations to the nearest whole cent.
  • (C) Determine the unit cost of one pound of Mona Loa coffee and one pound of Malaysian coffee.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management For Public Health And Not For Profit Organizations

Authors: Steven A. Finkler

3rd Edition

0136070736, 978-0136070733

More Books

Students also viewed these Accounting questions

Question

What influences peoples choice of values?

Answered: 1 week ago

Question

Design a training session to maximize learning. page 309

Answered: 1 week ago