Gourmet Specialty Coffee Company (GSCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. GSCC currently has 12 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials; however, there is a substantial amount of manufacturing overhead 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, while a few of the newer blends have very low volumes. GSCC prices its coffee at full product cost, including allocated overhead, plus a markup of 25 percent. If prices for certain coffees are significantly higher than market, adjustments are made. The company competes primarily on the quality of its products, but customers are price-conscious as well.

Data for the 20x5 budget include manufacturing overhead of $13,071,040, which has been allocated on the basis of each products direct-labor cost. The budgeted direct-labor cost for 20x5 totals $1,307,104. Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffee beans) will total $6,000,000.

The expected prime costs for one-pound bags of two of the companys products are as follows:

	Jamaican			Colombian
Direct material	$	3.10		$	4.10
Direct labor		0.60			0.60

GSCCs controller believes the traditional product-costing system may be providing misleading cost information. She has developed an analysis of the 20x5 budgeted manufacturing-overhead costs shown in the following chart.

Activity	Cost Driver	Budgeted Activity			Budgeted Cost
Purchasing	Purchase orders		2,366		$	2,460,640
Material handling	Setups		3,680			3,054,400
Quality control	Batches		1,480			621,600
Roasting	Roasting hours		194,200			4,272,400
Blending	Blending hours		68,000			1,496,000
Packaging	Packaging hours		53,000			1,166,000
Total manufacturing-overhead cost					$	13,071,040

Data regarding the 20x5 production of Jamaican and Colombian coffee are shown in the following table. There will be no raw-material inventory for either of these coffees at the beginning of the year.

	Jamaican	Colombian
Budgeted sales	2,400 lb.	102,000 lb.
Batch size	600 lb.	20,400 lb.
Setups	3 per batch	3 per batch
Purchase order size	600 lb.	51,000 lb.
Roasting time	1 hr. per 200 lb.	1 hr. per 200 lb.
Blending time	0.5 hr. per 200 lb.	0.5 hr. per 200 lb.
Packaging time	0.1 hr. per 200 lb.	0.1 hr. per 200 lb.

Required:

1.	Using GSCCs current product-costing system:

a.	Determine the companys predetermined overhead rate using direct-labor cost as the single cost driver.

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b.	Determine the full product costs and selling prices of one pound of Jamaican coffee and one pound of Colombian coffee. (Round your intermediate calculations and final answers to 2 decimal places.)

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2.	Calculate a new product cost, using an activity-based costing approach, for one pound of Jamaican coffee and one pound of Colombian coffee. Assume ending inventory for both the varieties of coffee is zero. (Round your intermediate calculations and final answers to 2 decimal places.)

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