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Java Source, Incorporated, (JSI) roasts, blends, and packages coffee beans for resale. Some of JSIs coffees sell in large volumes, while some newer blends sell

Java Source, Incorporated, (JSI) roasts, blends, and packages coffee beans for resale. Some of JSIs coffees sell in large volumes, while some newer blends sell in very low volumes. JSI prices its coffees at manufacturing cost plus a markup of 25%.

For next year, JSIs budget includes estimated manufacturing overhead cost of $3,020,600. JSI allocates manufacturing overhead to products using direct labor-hours. The expected direct labor cost totals $612,000, which represents 51,000 hours of direct labor time.

The expected direct materials and direct labor costs for one-pound bags of two of the companys coffee blends appear below.

Kenya Dark Viet Select
Direct materials $ 4.40 $ 3.20
Direct labor (0.030 hour per bag) $ 0.36 $ 0.36

JSIs controller believes the companys traditional costing system may be providing misleading cost information; therefore, he gathered the following activity-based cost information:

Activity Cost Pool Activity Measure Expected Activity for the Year Expected Cost for the Year
Purchasing Purchase orders 1,740 orders $ 504,600
Material handling Number of setups 1,770 setups 708,000
Quality control Number of batches 580 batches 139,200
Roasting Roasting hours 95,600 roasting hours 956,000
Blending Blending hours 33,100 blending hours 397,200
Packaging Packaging hours 26,300 packaging hours 315,600
Total manufacturing overhead cost $ 3,020,600

Data regarding the expected production and sales of Kenya Dark and Viet Select coffee are presented below.

Kenya Dark Viet Select
Expected production and sales 96,000 pounds 3,000 pounds
Batch size 9,600 pounds 600 pounds
Setups 3 per batch 3 per batch
Purchase order size 19,200 pounds 600 pounds
Roasting time per 100 pounds 1.5 roasting hours 1.5 roasting hours
Blending time per 100 pounds 0.5 blending hour 0.5 blending hour
Packaging time per 100 pounds 0.3 packaging hour 0.3 packaging hour

Required:

  1. Using direct labor-hours as the manufacturing overhead cost allocation base:
    1. Calculate the plantwide predetermined overhead rate.
    2. Calculate the unit product cost of one pound of Kenya Dark and one pound of Viet Select.
  2. Using the activity-based absorption costing approach:
    1. Calculate the total manufacturing overhead cost allocated to Kenya Dark and Viet Select.
    2. Using the data developed in (2a) above, compute Kenya Darks and Viet Selects manufacturing overhead cost per pound.
    3. Calculate the unit product cost of one pound of Kenya Dark and one pound of Viet Select.

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