Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 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. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices 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 $2,977,656, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for 1-pound bags are as follows: Direct materials Direct labor Mona Loa $ 4.20 0.30 Malaysian $ 3.20 0.30 CBI'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: Activity Purchasing Materials handling Quality control Roasting Blending Packaging Total factory overhead cost Cost Driver Purchase orders Setups Batches Roasting hours Blending hours Packaging hours Budgeted Driver Consumption 1,170 1,548 612 83,607 30,576 26,780 Budgeted Cost $ 503, 100 774,000 171.360 668,856 458,640 401, 700 $ 2,977,656 Data regarding the current year's production for the Mona Loa and Malaysian lines follow. There is no beginning or ending direct materials inventory for either of these coffees. Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging time Mona Loa 100,000 pounds 10,000 pounds 3 per batch 25,000 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Malaysian 2,000 pounds 500 pounds 3 per batch 500 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Coffee Bean has total practical capacity as noted in the table below, i.e. processing 1,300 purchase orders, 2,400 setups, etc. These are the levels of activity work that are sustainable. Activity Purchasing Materials handling Quality control Roasting Blending Packaging Practical Capacity 1,300 2,400 1,100 130,000 40,000 35,000 Required: 1. Determine the activity rates based on practical capacity and the cost of idle capacity for each activity. (Round "Usage%" and "Practical Capactity Rate" to 2 decimal places. For percentages.1234 = 12.34%.) Activity Budgeted Activity Budgeted Cost Usage Based Rate Usage% Practical Capacity Rate Unused Capacity Idle Capacity Cost Purchasing Materials handling Quality control Roasting Blending Packaging 1,170 $ 503,100 1,548 $ 774,000 612 $ 171,360 83,607 $ 668,856 30,576 $ 458,640 26,780 $ 401,700 $ 2,977,656 Practical Capacity at Current Spending 1,300 2,400 1,100 130,000 40,000 35,000
