See prompt and questions below:
Naples Coffee, |nc., (NCI) buys coffee beans from around the world and roasts, blends, and packages them for resale. Some of NCl's coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. NCI prices its coffees at manufacturing cost plus a markup of 25%. For the coming year, NCl's budget includes estimated manufacturing overhead cost of $2,200,000. NCI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 50,000 hours of direct labor time. The expected costs for direct materials and direct labor for one-pound bags of two of the company's coffee products appear below. Kenya Dark Viet Select Direct Materials $4.50 $2.90 Direct Labor (0.02 hours per bag) $0.34 $0.34 NCl's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether this is correct, the controller has prepared an analysis of the year's expected manufacturing overhead costs, as shown in the following table: Expected Activity for the Expected Cost for Activity Cost Pool Activity Measure Year the Year Purchasing 2,000 orders $560,000 Material Handling Number of setups 1,000 setups 193,000 Quality Control Number of batches 500 batches 90,000 Roasting 1,045.000 Blending 192.000 Packaging 1201000 Total manufacturing $2,200,000 Data regarding the expected production of Kenya Dark and Viet Select coffee are presented below. Kenya Dark Expected sales 80,000 pounds 4,000 pounds Batch size 5,000 pounds 500 pounds Setups 2 per batch 2 per batch Purchase order size Roasting time per 100 pounds Blending time per 100 pounds Packaging time per 100 pounds Required: 1. Using direct labor-hours as the manufacturing overhead cost allocation base, do the following: a. Determine the plantwide predetermined overhead rate that will be used during the year. b. Determine the unit product cost of one pound of Kenya Dark coffee and one pound of Viet Select coffee. 2. Using the activity-based absorption costing approach, do the following: a. Determine the total amount of manufacturing overhead cost assigned to Kenya Dark coffee and to Viet Select coffee for the year. b. Using the data developed in (2a) above, compute the amount of manufacturing overhead cost per pound of Kenya Dark coffee and Viet Select coffee. c. Determine the unit product cost of one pound of Kenya Dark coffee and one pound of Viet Select coffee. 3. Write a brief memo to the president of NCI that explains what you found in steps 1 and 2 and that discusses the implications of using direct labor-hours as the only manufacturing overhead cost allocation base
