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 $3,617,766, 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 Malaysian $ $ 4.20 $ 3.20 0.30 0.30 Col'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: Setups Budgeted Driver Activity Cost Driver Consumption Purchasing Purchase 1,135 orders Materials handling 2,106 Quality control Batches 814 Roasting Roasting 93,217 hours Blending Blending hours 32,256 Packaging Packaging 26,520 hours Total factory overhead cost Budgeted Cost $ 578,850 1, 179, 360 203,500 745,736 645, 120 265,200 3,617,766 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. Mona Loa Malaysian Budgeted sales 100,000 pounds 2,000 pounds Batch size 10,000 pounds 500 pounds Setups 3 per batch 3 per batch 3 Purchase order size 25,000 pounds 500 pounds Roasting time 1 hour per 100 pounds 1 hour per 100 pounds 0.5 hour per 100 0.5 hour per 100 Blending time pounds pounds 0.1 hour per 100 Packaging time 0.1 hour per 100 pounds pounds Coffee Bean has total practical capacity as noted in the table below, i.e. processing 1,500 purchase orders, 3,000 setups, etc. These are the levels of activity work that are sustainable Practical Activity Capacity Purchasing 1,500 Materials handling 3,000 Quality control 1,300 Roasting 170,000 Blending 34,000 Packaging 39,000 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 Budgeted Activity Cost Usage Based Rate Practical Capacity Usage at Current % Spending 1,500 Practical Capacity Rate Unused Capacity Idle Capacity Cost 1,135 $ 578,850 2.106/ s Purchasing Materials handling Quality control Roasting Blending Packaging 1,179,360 814 $ 203,500 93,217 $ 745,736 32,256 $ 645,120 26,520 $ 265,200 3,000 1,300 170,000 34,000 39,000
