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World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and

World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. WGCC has 15 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials; however, there is a substantial amount of manufacturing overhead 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, 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 30%. The company competes primarily on quality, but customers are somewhat price-conscious as well.

Data for the 2012 budget include manufacturing overhead of $3,000,000, which has traditionally been allocated to products based on budgeted direct labor cost. The budget for direct labor cost for 2012 is $600,000. Budgeted direct raw material (mostly coffee beans) costs total $6,000,000.

The expected material and labor costs for one pound for two of the company's products are as follows:

image text in transcribed
J ' Kona ' ' Nialaysian Direct material $3.20 $4.20 Direct labor $0.30 $0.30 WGCC's controller believes that the direct-labor based product costing system is providing misleading cost information. She has developed an analys1s of 2012's manufacturing costs as below: Activity Cost driver Budgeted Activity Budgeted cost Purchasing Purchase orders 1,158 $579,000 Material handling Setups 1,800 720,000 Quality control Batches 720 144,000 Roasting Roasting hours 96,100 961,000 Blending Blending hours 33,600 336,000 Packaging Packaging hours 26,000 260,000 Total manufacturing overhead cost $3,000,000 Data regarding the 2012 production of Kona and Malaysian Coffees are shown below: Kona Malaxsian Budgeted Sales 2,000 pounds 100,000 pounds Number of batches 4 10 Setups 12 30 Purchase orders 4 4 Roasting time 20 hours 1000 hours g1 hour per 100 pounds! g1 hour per 100 pounds) Blending time 10 hours 500 hours {0.5 hour per 100 pounds! {0.5 hour per 100 pounds) Packaging time 2 hours 100 hours {0.1 hour per hundred pounds! {0.1 hour per hundred pounds)

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