Question
$Java Source, Inc. (JSI) purchases coffee beans from around the world and roasts, blends and packages them for resale.Some of JSI's coffees are very popular
$Java Source, Inc. (JSI) purchases coffee beans from around the world and roasts, blends and packages them for resale. Some of JSI's coffees are very popular and sell in high volumes, while some of the newer blends sell in very low volumes. JSI prices its coffees at cost of manufacture plus a 25% surcharge.
For next year, JSI's budget includes estimated manufacturing overhead costs of $2,200,000. JSI allocates manufacturing overhead to products based on direct labor hours. The expected direct labor cost totals $600,000, which represents 50,000 hours of direct labor time. The expected direct materials and direct labor costs for one-pound bags of two of the company's coffee products are shown below.
dark kenya | vietnamese team | |
Direct materials | $4.50 | $2.90 |
Direct labor (0.02 hours per bag) | $0.34 | $0.34 |
JSI's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether this is correct or not, the controller has prepared an analysis of the expected manufacturing overhead costs for the year, as shown in the following table:
Activity Cost Pool | activity measure | Activity expected for the year | Expected cost for the year |
Purchasing | purchase orders | 2000 orders | $560,000 |
Material handling | Number of configurations | 1,000 configurations | $193,000 |
QA | Number of lots | 500 lots | $90,000 |
Roast | roasting hours | 95,000 roasting hours | $1,045,000 |
Mix | mixing hours | 32,000 mixing hours | $192,000 |
packaging | Packing Hours | 24,000 packaging hours | $120,000 |
Total Cost of Manufacturing Overhead | $2,200,000 |
Data on the expected production of Kenya Dark and Viet Select coffee are presented below.
dark kenya | vietnamese team | |
Expected sales | 80,000 pounds | 4,000 pounds |
Lot Size | 5,000 pounds | 500 pounds |
settings | 2 per lot | 2 per lot |
Purchase order size | 20,000 pounds | 500 pounds |
Roasting Time per 100 Pounds | 1.5 hours roasting | 1.5 hours roasting |
Blend time per 100 pounds | 0.5 hours of smoothie | 0.5 hours of smoothie |
Packing Time for 100 Pounds | 0.3 hours of packaging | 0.3 hours of packaging |
Required:
1. Using direct labor hours as the manufacturing overhead cost allocation basis, do the following:
to. Determine the predetermined overhead rate for the entire plant that will be used during the year.
b. Determine the unit cost of the product of one pound of Kenya Dark coffee and one pound of Viet Select coffee.
2. When using the activity-based absorption costing method, do the following:
to. Determine the total amount of manufacturing overhead costs allocated to Kenya Dark coffee and Viet Select coffee for the year
b. Using the data developed in (2a) above, calculate the amount of manufacturing overhead per pound for Kenya Dark Coffee and Viet Select Coffee.
C. Determine the unit cost of the product of one pound of Kenya Dark coffee and one pound of Viet Select coffee
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