Coffee Bean Inc. {CHI} 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 1pound 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 ofthe newer brands have very low volumes. CBI prices its coffe- 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 1pound bags of two ofthe company's many products are as follows: Mona Loa Malaysian Direct materials $ 4.20 $ 3.20 Direct labor 0.30 0.30 CBl's controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year's budgeted factory overhead costs: Budgeted Activity Cost Driver Activity Budgeted Cost Purchasing Purchase orders 1,238 $ 582,000 Materials handling Setups 1,880 228,000 Quality control Batches 800 152,000 Roasting Roasting hours 95,900 959,000 Blending Blending hours 34,400 344,000 Packaging Packaging hours 25,800 258,000 Total factory overhead cost $ 3,948,339 Data regarding the current year's production ofjust two of its lines, Mona Lea and Malaysian, follow. There is no beginning or ending direct materials inventory for either ofthese coffees. Mona Loa Malaysian Budgeted sales 108,000 pounds 2,080 pounds Batch size 10,800 pounds 580 pounds Setups 3 per batch 3 per batch Purchase order size 25,800 pounds 580 pounds Roasting time 1 hour per 100 pounds 1 hour per 100 pounds Blending time 0.5 hour per 100 pounds 0.5 hour per 100 pounds Packaging time 0.1 hour per 100 pounds 0.1 hour per 100 pounds Required: 1. Using Coffee Bean Inc's current product costing system, a. Determine the company's predetermined overhead rate using direct labor cost as the single cost driver. b. Determine the full product costs and selling prices of one pound of Mona Loa coffee and one pound of Malaysian coffee. 2. Using an activitybased costing approach, develop a new product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 108,000 pounds of Mona Loa and the 2,080 pounds of Malaysian. ReqlB Rqu Using Colfee Bean Inc.'s current product costing system, determine the company's predetermined overhead rate using direct labor cost as the single cost driver. (Round your answer to 2 decimal places.) per directlabor dollar Using Coffee Bean Inc.'s current product costing system, determine the full product costs and selling prices of one pound of Mona Loa coffee and one pound of Malaysian coffee. (Round your answers to 2 decimal places.) Product costs Budgeted selling price per pound ReqlA ReqlB Using an activitybased costing approach, develop a newI product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 108,000 pounds of Mona Loa and the 2,080 pounds of Malaysian. (Round intermediate calculations to 2 decimal places.) Direct unit 00515: Direct materials Direct labor Indirect unit costs: Purchasing Material handling $ 0.00 0.00 99 Quality control Roasting Blending Packaging Total unit cost $ 0.00
