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