High Mountain Coffee Co. is a processor and distributor of different blends of quality coffee. The company buys beans from around the world and roasts, blends and packages them for resale. There are presently 15 different flavors which are sold to gourmet shops in one pound bags. The major cost is raw materials; however, there is substantial amount of manufacturing overhead in the product. This relates to the high level of automation in the roasting and packing. The company uses very little direct labor. Some of the flavors are very popular and sell in large volumes while a few newer blends have very low volumes. High Mountain prices its coffee at full product cost including allocated overhead plus a markup of 30%. High Mountain competes with comparable qualities but customers are cost conscience. Data for the 2018 budget includes manufacturing overhead of $3,000,000; direct labor of $600,000, and raw materials of $6,000,000. Total plant production is estimated to be 3,000,000 pounds of coffee. The expected prime costs for one pound bags of the two following products are as follows: The expected prime costs for one pound bags of the two following products are as follows: Kayaker's Delights $3.20 .30 Brundage Blended $4.20 .30 Direct material Direct labor High Mountain has also developed the following budgeted manufacturing overhead information for 2011. Activity Cost Driver Purchasing Purchase orders Material handling Setups Quality control Batches Roasting Roasting hours Blending Blending hours Packaging Packages Total manufacturing overhead Budgeted Activity 1,158 1,800 720 96,100 33,600 260,000 Budgeted Cost $579,000 720,000 144,000 961,000 336,000 260.000 $3.000.000 BUSMBA 525 Homework Assignment 6.8 Data regarding the 2018 production of Kayaker's and Brundage 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. Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging Kayaker's 2,000 lbs 500 lbs 3 500 lbs 1 hr. per 100 lbs. .5 hr. per 100 lbs 1 lb per package Brundage 100,000 lbs 10,000 lbs 5 25,000 lbs 1 hr per 100 lbs .5 hr per 100 lbs 1 lb per package Required: 1. Calculate the overhead allocation rate for each blend using direct labor dollars as the driver. 2. Calculate the overhead allocation rate for each blend assuming number of pounds is the driver. 3. Calculate the overhead allocation rate for each blend using the ABC approach. 4. Which is preferable and why
