Some of the coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. WGCC prices Its coffee at full product cost, Including allocated overhead, plus a markup of 20 percent. If prices for certain coffees are significantly higher than market, adjustments are made. The company competes primarily on the quality of its products, but customers are price- conscious as well. Data for the 20x1 budget Include manufacturing overhead of $12,532,320, which has been allocated on the basis of each product's direct-labor cost. The budgeted direct-labor cost for 20x1 totals $1,253,232 Based on the sales budget and raw- material budget, purchases and use of raw materials (mostly coffee beans) will total $5,900,000. The expected prime costs for one-pound bags of two of the company's products are as follows: Direct material Direct labor Kona $3.00 0.50 Malaysian $4.00 0.50 WGCC's controller believes the traditional product-costing system may be providing misleading cost Information. She has developed an analysis of the 20x1 budgeted manufacturing-overhead costs shown in the following chart. Activity Purchasing Material handling Quality control Roasting Blending Packaging Total manufacturing-overhead cost Cost Driver Purchase orders Setup: Batches Roasting hours Blending hours Packaging hours Eudgeted Activity 2, 341 3,640 1,460 193,200 67,600 52,500 Budgeted Cost $ 2,387,820 2,966, 600 598,600 4,057,200 1,419,600 1, 102,500 $12,532,320 Data regarding the 20x1 production of Kona and Malaysian coffee are shown in the following table. There will be no raw-material Inventory for either of these coffees at the beginning of the year. Budgeted sales Batch sise Setups Purchase order size Roasting time Blending time Packaging time Kona 2,200 lb. 550 lb. 3 per batch 550 lb 1 hr. per 100 lb. 0.5 hz. per 100 lb. 0.1 hr. per 100 lb. Malaysian 101,000 lb. 20,200 lb. 3 per batch 50, 500 lb. 1 hr. per 100 lb. 0.5 hr. per 100 lb. 0.1 hz. per 100 lb. Required: 1. Using WGCC's current product-costing system: a. Determine the company's predetermined overhead rate using direct-labor cost as the single cost driver. b. Determine the full product costs and selling prices of one pound of Kona coffee and one pound of Malaysian coffee. 2. Develop a new product cost, using an activity-based costing approach, for one pound of Kona coffee and one pound of Malaysian coffee
