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 25 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 $17,611,200, which has been allocated on the basis of each products direct-labor cost. The budgeted direct-labor cost for 20x1 totals $1,761,120. Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffee beans) will total $6,800,000. The expected prime costs for one-pound bags of two of the company's products are as follows: Direct material Direct labor Kona $3.90 0.80 Malaysian $4.90 0.80 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 Setups Batches Roasting hours Blending hours Packaging hours Budgeted Activity 2,566 4,000 1,640 202,200 71,200 57,000 Budgeted Cost $ 3,079,200 3,800,000 820,000 6,066,000 2,136,000 1,710,000 $17,611,200 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 size Setups Purchase order size Roasting time Blending time Packaging time Kona 4,000 lb. 1,000 lb. 3 per batch 1,000 lb. 1 hr. per 100 lb. 0.5 hr. per 100 lb. 0.1 hr. per 100 lb. Malaysian 110,000 lb. 22,000 lb. 3 per batch 55,000 lb. 1 hr. per 100 lb. 0.5 hr. per 100 lb. 0.1 hr. 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. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 2 Determine the company's predetermined overhead rate using direct-labor cost as the single cost driver. Overhead rate $ 3 per direct-labor dollar Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2 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.) Full product cost Selling price Kona 7.10 per pound 7.81 per pound $ $ Malaysian 8.10 per pound 8.91 per pound $ Complete this question by entering your answers in the tabs below. Reg 1A Req 1B Req 2 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.) Kona coffee Malaysian coffee $ $ New Product Cost 9.73 per pound 6.38 per pound
