Question 3 All Ground Up Inc. (AGU) is a distributor and processor of a variety of different brands of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. AGU currently has 15 different coffees that it offers to gourmet shops and restaurants in one-kilogram bags. The major cost is direct materials; however, there is a substantial amount of factory overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labour. Some of the coffees are very popular and sell in large volumes, while a few of the newer brands have very low volumes. AGU prices its coffee at full product cost, including allocated overhead, plus a markup of 25%. If prices for certain coffees are significantly higher than the market, the prices are lowered. The company competes primarily on the quality of its products, but customers, especially restaurants, are price conscious as well. Data for the 2021 budget includes factory overhead of $5,000,000, which has been allocated in the Data for the 2021 budget includes factory overhead of $5,000,000, which has been allocated in the company's current costing system on the basis of each product's direct labour cost. The budgeted direct labour cost for 2021 is $500,000. Budgeted purchases and use of direct materials [mostly coffee beans} will total $8,000,000. Budgeted direct costs for one-kilogram bags of two of the company's products (Colombian Roast, a popular, high-volume product, and Peruvian Blend, a more specialized, low-volume coffee) are as follows: Columbian Peruvian Roast Blend Direct mate rials $2.28 $2.84 Direct labour $0.20 50.20 AGU's controller believes the current traditional product costing system may be providing misleading cost information. He has developed the following analysis of the 2021 budgeted factory overhead costs: Activity Cost Driver Budgeted Budgeted Activity Cost Purchasing Purchase order (PO) 3,187 5 637,400 Materials handling Machine movements 1,500 675,000 Quality control Batches 500 170,000 Grinding Grinding hours 50,000 850,000 Boasting Roasting hours 110,000 1,100,000 Blending Blending hours 18,920 567,600 Packaging Packaging hours 40,000 1 000 000 5 5,000,000 Data regarding the 2021 production of Colombian Roast and Peruvian Blend coffee follow. There is no Data regarding the 2021 production of Colombian Roast and Peruvian Blend coffee follow. There is no beginning or ending direct materials inventory for either of these coffees. Budgeted sales Batch size Machine movements Purchase order size Grinding time Roasting time Blending time Columbian Roast 200,000 kg 10,000 kg 3 per batch 5,000 kg 2 hours per 100 kg 1 hour per 100 kg 0.5 hours per 100 kg Peruvian Blend 2,500 kg 500 kg 3 per batch 250 kg 2.5 hours per 100 kg 1 hour per 100 kg 0.5 hours per 100 kg Packaging time 0.1 hours per 100 kg 0.1 hrs per 100 kg b) Using an activity-based costing approach, develop a new product cost and price for one kilogram each of Colombian Roast and Peruvian Blend coffee