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For the coming year, CBI's budget includes estimated manufacturing overhead cost of $4,500,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 80,000 hours of direct labor time. Based on the sales budget and expected raw materials costs, the company will purchase and use $6,000,000 of raw materials (mostly coffee beans) during the year. The expected costs for direct materials and direct labor for one-pound bags of two of the company's coffee products appear below. Mona Loa Malaysian $ 4.20 $ 3.20 Direct materials Direct labor (0.05 hours per $ 0.30 $ 0.30 bag) POHR: DLHS (note that it takes 0.05 DLHs to make one bag of coffee you'll need this to apply MOH using the Traditional Method) Traditional Costing CBI's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether or not this is correct, the controller has prepared an analysis of the year's expected manufacturing overhead costs, Step 1: Compute Predetermined Overhead Rate as shown in the following table: Estimated MOH: Estimated Estimated Allocation Base: Activity Estimated Activity Cost for the Activity Cost Pool Measure for the Year Year Step 2: Apply MOH to 1 bag of coffee Purchase Purchasing 3,000 orders 600,000 orders POHR: Number of Material handling $ 1,120,000 Actual Allocation Base per bag of coffee: setups Number of Quality control 1,000 batches $ batches 160,000 Step 3: Calculate Per Bag Cost of Coffee Mona Loa roasting Roasting 120,000 $ 1,200,000 Direct Materials per bag hours hours Blending Direct Labor per bag Blending blending $ 1,000,000 Applied MOH per bag hours Packaging Total Cost per bag Packaging hours $ 420,000 2,500 setups Applied MOH per DLH per bag Malaysian Roasting 80,000 hours hours 21,000 packaging Total manufacturing overhead $4,500,000 cost Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. Mona Loa Malaysian Expected sales 70,000 pounds 1,500 pounds Data regarding the expected activities used by Mona Loa and Malaysian coffees are presented below. Mona Loa Malaysian 5 orders 30 setups Purchase Orders Setups Batches Roasting time Blending time Packaging time 10 batches 700 hours 350 hours 70 hours 4 orders 12 setups 4 batches 15 hours 7.5 hours 1.5 hours
