Required:
1. Using Coffee Bean Inc.s current product costing system,
a. Using Coffee Bean Inc.s current product costing system, determine the companys predetermined overhead rate using direct labour cost as the single cost driver. (Round your answer to 2 decimal places.)
b. Using Coffee Bean Inc.s current product costing system, determine the full product costs and selling prices of one pound of Mona Loa coffee and one pound of Malaysian coffee. (Round your answers to 2 decimal places.)
2. Using an activity-based costing approach, develop a new product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 106,000 pounds of Mona Loa and the 2,060 pounds of Malaysian.
Coffee Bean Inc. (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 $3,600,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $606,000. The firm budgeted $6,600,000 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 Packaging Total factory overhead cost Cost Driver Purchase orders Setups Batches Roasting hours Blending hours Packaging hours Budgeted Activity 1,218 1,860 780 96,700 34,200 26,600 Budgeted Cost $ 585,000 726,000 150,000 967,000 342,000 266,000 $ 3,036,000 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. Budgeted sales Batch size Setups Purchase order size Roasting time Blending time Packaging time Mona Loa 106,000 pounds 10,600 pounds 3 per batch 25,600 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Malaysian 2,060 pounds 560 pounds 3 per batch 560 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Reg 1A Reg 1B Reg 2 Using an activity-based costing approach, develop a new product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 106,000 pounds of Mona Loa and the 2,060 pounds of Malaysian. (Round intermediate calculations to 2 decimal places.) Mona Loa Coffee Malaysian Coffee 0.00 S 0.00 Direct unit costs: Direct materials Direct labor Indirect unit costs: Purchasing Material handling Quality control Roasting Blending Packaging Total unit cost S 0.00 S 0.00
