ETHICS CHALLENGE LO4-1 You and your friends go to a restaurant as a group. At the end of the meal, the issue arises of how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. Another alternative is to split the bill equally among the individuals. Required: Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to the material covered in this chapter? Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. CASE LO4-2, LO4-3, LO4-4 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 offers a large variety of 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 processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor. Some of CBI's coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. For the coming year, CBF's budget includes estimated manufacturing overhead cost of $3,000,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 50,000 hours of direct labor time. The expected costs for direct materials and direct labor for one-pound bags of two of the company's Required: 1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following: a. Determine the predetermined overhead rate that will be used during the year. b. Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffee. 2. Using activity-based costing as the basis for assigning manufacturing overhead cost to products, do the following: a. Determine the total amount of manufacturing overhead cost assigned to the Mona Loa coffee and to the Malaysian coffee for the year. b. Using the data developed in part (2a) above, compute the amount of manufacturing overhead cost per pound of the Mona Loa coffee and the Malaysian coffee. Round all computations to the nearest whole cent. c. Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffice 3. Write a brief memo to the presiceat of CBI cxplaining what you have found in paris (I) and (2) above and discussing the smptications to the company of using direct labor as the base for assigning ETHICS CHALLENGE LO4-1 You and your friends go to a restaurant as a group. At the end of the meal, the issue arises of how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. Another alternative is to split the bill equally among the individuals. Required: Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to the material covered in this chapter? Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. CASE LO4-2, LO4-3, LO4-4 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 offers a large variety of 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 processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor. Some of CBI's coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. For the coming year, CBF's budget includes estimated manufacturing overhead cost of $3,000,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 50,000 hours of direct labor time. The expected costs for direct materials and direct labor for one-pound bags of two of the company's Required: 1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following: a. Determine the predetermined overhead rate that will be used during the year. b. Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffee. 2. Using activity-based costing as the basis for assigning manufacturing overhead cost to products, do the following: a. Determine the total amount of manufacturing overhead cost assigned to the Mona Loa coffee and to the Malaysian coffee for the year. b. Using the data developed in part (2a) above, compute the amount of manufacturing overhead cost per pound of the Mona Loa coffee and the Malaysian coffee. Round all computations to the nearest whole cent. c. Determine the unit product cost of one pound of the Mona Loa coffee and one pound of the Malaysian coffice 3. Write a brief memo to the presiceat of CBI cxplaining what you have found in paris (I) and (2) above and discussing the smptications to the company of using direct labor as the base for assigning
