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 currently 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 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 $17,021,280, which has been allocated on the basis of each products direct-labor cost. The budgeted direct-labor cost for 20x1 totals $1,702,128. Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffee beans) will total $6,700,000. The expected prime costs for one-pound bags of two of the companys products are as follows:

KonaMalaysianDirect material$3.80 $4.80 Direct labor 0.70 0.70

WGCCs 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.

ActivityCost DriverBudgeted Activity Budgeted CostPurchasingPurchase orders 2,541 $2,998,380 Material handlingSetups 3,960 3,702,600 Quality controlBatches 1,620 793,800 RoastingRoasting hours 201,200 5,834,800 BlendingBlending hours 70,800 2,053,200 PackagingPackaging hours 56,500 1,638,500 Total manufacturing-overhead cost $17,021,280

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.

KonaMalaysian Budgeted sales3,800lb.109,000lb. Batch size950lb.21,800lb. Setups3per batch3per batch Purchase order size950lb.54,500lb. Roasting time1hr. per 100 lb.1hr. per 100 lb. Blending time0.5hr. per 100 lb.0.5hr. per 100 lb. Packaging time0.1hr. per 100 lb.0.1hr. per 100 lb.

Required: 1. Using WGCCs current product-costing system: a. Determine the companys 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.

Determine the companys predetermined overhead rate using direct-labor cost as the single cost driver.

Overhead rate per direct-labor dollar

Determine the full product costs and selling prices of one pound of Kona coffee and one pound of Malaysian coffee. (Round your intermediate calculations and final answers to 2 decimal places.)

KonaMalaysianFull product cost per pound per poundSelling price per pound per pound

Develop a new product cost, using an activity-based costing approach, for one pound of Kona coffee and one pound of Malaysian coffee. (Round your intermediate calculations and final answers to 2 decimal places.)

New Product CostKona coffee per poundMalaysian coffee per pound