Question
Problem 5-43 (Static) Cost of Idle Capacity [LO 5-1, 5-3, 5-4] Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans
Problem 5-43 (Static) Cost of Idle Capacity [LO 5-1, 5-3, 5-4] Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 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. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices 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 $3,000,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for 1-pound bags are as follows: nces Direct materials Direct labor Mona Loa $ 4.20 0.30 Malaysian $3.201 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 Cost Driver Budgeted Driver Consumption Budgeted Cost Purchasing Materials handling Quality control Purchase orders Setups Batches 1,158 $579,000 1,800 720,000 720 144,000 Roasting Roasting hours 96,100 961,000 Blending Packaging Blending hours 33,600 336,000 Packaging hours 26,000 260,000 Total factory overhead cost $ 3,000,000 Data regarding the current year's production for the Mona Loa and Malaysian lines follow. There is no beginning or ending direct materials inventory for either of these coffees. Budgeted sales Mona Loa 100,000 pounds Malaysian 2,000 pounds Prou 5 of 5 Mout
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