Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 15 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor.

Some of the coffees are very popular and sell in large volumes; a few of the newer brands have very low volumes. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices for certain coffees are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well.

Data for the current budget include factory overhead of $3,800,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $608,000. The firm budgeted $6,800,000 for purchase and use of direct materials (mostly coffee beans).

The budgeted direct costs for 1-pound bags of two of the company's many products are as follows:

\fBudgeted Activity Cost Driver Activity Budgeted Cost Purchasing Purchase orders 1,238 $ 587,000 Materials handling Setups 1,880 728,000 Quality control Batches 800 152,000 Roasting Roasting hours 96,900 969,000 Blending Blending hours 34,400 344,000 Packaging Packaging hours 26,800 268,000 Total factory overhead cost $3,043.000 ' Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging time Mona Loa 108,000 pounds 10,800 pounds 3 per batch 25,800 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Malaysian 2,080 pounds 580 pounds 3 per batch 580 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds