Question
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:
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