From the Ground Up Inc. (FGU) is a distributor and processor of a variety of different brands of coffee. The company buys coffee beans from around the world and roasts, blends and packages them for resale. FGU currently has 15 different coffees that it offers to gourmet shops and restaurants in one-kilogram bags. The major cost is direct materials; however, there is a substantial amount of factory overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labour. Some of the coffees are very popular and sell in large volumes, while a few of the newer brands have very low volumes. FGU prices its coffee at full product cost, including allocated overhead, plus a markup of 25%. If prices for certain coffees are significantly higher than the market, the prices are lowered. The company competes primarily on the quality of its products, but customers, especially restaurants, are price conscious as well. Data for the 20/9 budget includes factory overhead of $5,000,000, which has been allocated in the company's current costing system on the basis of each product's direct labour cost. The budgeted direct labour cost for 20x9 is $500,000. Budgeted purchases and use of direct materials (mostly coffee beans) will total $5,000,000. Budgeted direct costs for one-kilogram bags of two of the company's products (Colombian Roast, a popular, high- volume product, and Peruvian Blend, a more specialized, low-volume coffee) are as follows: Colombian Peruvian Blend Roast $2.28 Direct materials $2.84 $0.20 Direct labour $0.20 FGU's controller believes the current traditional product costing system may be providing misleading cost information. He has developed the following analysis of the 20/9 budgeted factory overhead costs: Budgeted Budgeted 3187 1500 Activity Purchasing Material handling Quality control Grinding Roasting Blending Cost driver Purchase order Machine movements Batches Grinding hours Roasting hours Blending hours Packaging hours 50 000 1101000 18.920 49000 $ 537 400 675.000 170 000 850 000 1.100.000 7800 1000000 SISTO Packaging Data regarding the 20x9 production of Colombian Roast and Pewien Blend coffee follows Assume no beginning or ending direct materials inventory for either of these coffees Budgeted sales Batch size Machine movements Purchase order size Grinding time Roasting time Blending time Packaging time Colombian Roast 200 000 kg 10 000 kg 3 perbatch 5.000 kg 2 hours per 100 kg 1 hour per 100 kg 0.5 hours per 100 kg 0.1 hours per 100 kg Peruvian Blend 2500 kg 500 kg 3 per batch 250 kg 25 hours per 100 kg 1 hour per 100 kg 0.5 hours per 100 kg 0.1 hours per 100 kg Required: a) Using FGU's current traditional product costing system to do the following: i. Determine the company's predetermined overhead rate (POR) using direct labour cost as the single cost driver. ii. Determine the full product costs and selling prices for one kilogram each of Colombian Roast and Peruvian Blend coffee. b) Using an activity-based costing approach, develop a new product cost and price for one kilogram each of Colombian Roast and Peruvian Blend coffee