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 CBIs 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
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 years expected manufacturing overhead costs, as shown in the following table:
Activity Cost Pool	Activity Measure			Estimated Activity for the Year					Estimated Cost for the Year
Purchasing	Purchase orders			3,000			orders		$	600,000
Material handling	Number of setups			2,500			setups		$	1,120,000
Quality control	Number of batches			1,000			batches		$	160,000
Roasting	Roasting hours			120,000			roasting hours		$	1,200,000
Blending	Blending hours			80,000			blending hours		$	1,000,000
Packaging	Packaging hours			21,000			packaging hours		$	420,000
Total manufacturing overhead cost									$	4,500,000

Data regarding the expected production of Mona Loa and Malaysian coffee are presented below.
Mona Loa		Malaysian
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	5	orders	4	orders
Setups	30	setups	12	setups
Batches	10	batches	4	batches
Roasting time	700	hours	15	hours
Blending time	350	hours	7.5	hours
Packaging time	70	hours	1.5	hours

Traditional Costing

Step 1: Compute Predetermined Overhead Rate

Estimated MOH: ______ POHR: _______

Estimated Allocation Base:______DLHs

Step 2: Apply MOH to 1 bag of coffee

POHR: _____ Applied MOH per bag: ___

Actual Allocation Base per bag of coffee: _____DLH per bag

Step 3: Calculate Per Bag Cost of Coffee

Mona Loa Malaysian

Direct Materials per bag:

Direct labor per bag:

Applied MOH per bag:

Total Cost per bag: