Problem 5-42 (Algo) Volume-Based Costing versus ABC [LO 5-2, 5-3] Coffee Bean Incorporated (CBI) processes and...

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Problem 5-42 (Algo) Volume-Based Costing versus ABC [LO 5-2, 5-3] Coffee Bean Incorporated (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 15 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred 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; a few of the newer brands have very low volumes. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices for certain coffees are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,060,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $610,000. The firm budgeted $7,000,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for 1-pound bags of two of the company's many products are as follows: Direct materials Direct labor Mona Loa $ 4.20 0.30 Malaysian $ 3.20 0.30 CBI's controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year's budgeted factory overhead costs: Activity Purchasing Materials handling Quality control Roasting Blending Cost Driver Purchase orders Budgeted Driver Consumption 1,258 Budgeted Cost $ 589,000 Setups 1,900 730,000 Batches 820 154,000 Roasting hours 97,100 971,000 Blending hours 34,600 346,000 Packaging hours 27,000 270,000 $ 3,060,000 Packaging Total factory overhead cost Data regarding the current year's production of just two of its lines, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees. Mona Loa Malaysian Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging time 110,000 pounds 11,000 pounds 3 per batch 26,000 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds 2,100 pounds 600 pounds 3 per batch 600 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Problem 5-42 (Algo) Volume-Based Costing versus ABC [LO 5-2, 5-3] Coffee Bean Incorporated (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 15 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred 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; a few of the newer brands have very low volumes. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices for certain coffees are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,060,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $610,000. The firm budgeted $7,000,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for 1-pound bags of two of the company's many products are as follows: Direct materials Direct labor Mona Loa $ 4.20 0.30 Malaysian $ 3.20 0.30 CBI's controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year's budgeted factory overhead costs: Activity Purchasing Materials handling Quality control Roasting Blending Cost Driver Purchase orders Budgeted Driver Consumption 1,258 Budgeted Cost $ 589,000 Setups 1,900 730,000 Batches 820 154,000 Roasting hours 97,100 971,000 Blending hours 34,600 346,000 Packaging hours 27,000 270,000 $ 3,060,000 Packaging Total factory overhead cost Data regarding the current year's production of just two of its lines, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees. Mona Loa Malaysian Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging time 110,000 pounds 11,000 pounds 3 per batch 26,000 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds 2,100 pounds 600 pounds 3 per batch 600 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds