Coffee Bean, Inc. (CBI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. CBI currently has 40 different coffees that it sells to gourmet shops in one-pound bags. The major cost of the coffee is raw materials. However, the company's predominantly automated roasting, blending, and packing process requires a substantial amount of manufacturing overhead. The company uses relatively little direct labor.
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Some of CBI's coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. CBI prices its coffee at manufacturing cost plus a markup of 30%. If CBI's prices for certain coffees are significantly higher than market, adjustments are made to bring CBI's prices more into alignment with the market because customers are somewhat price conscious.
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For the coming year, CBI's budget includes estimated manufacturing overhead cost of $3,027,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $612,000, which represents 51,000 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.
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The expected costs for direct materials and direct labor for one-pound bags of two of the company's coffee products appear below.
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|
Mona Loa |
Malaysian |
| Direct materials |
$ |
4.00 |
$ |
3.30 |
| Direct labor (.030 hours per bag) |
$ |
0.36 |
$ |
0.36 |
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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, as shown in the following table:
|
| Activity Cost Pool |
Activity Measure |
Expected Activity
for the Year |
Expected
Cost for the
Year |
| Purchasing |
Purchase orders |
1,670 |
orders |
$ |
534,400 |
| Material handling |
Number of setups |
1,770 |
setups |
|
690,300 |
| Quality control |
Number of batches |
630 |
batches |
|
144,900 |
| Roasting |
Roasting hours |
95,600 |
roasting hours |
|
1,051,600 |
| Blending |
Blending hours |
33,800 |
blending hours |
|
371,800 |
| Packaging |
Packaging hours |
26,000 |
packaging hours |
|
234,000 |
|
|
|
|
|
|
| Total manufacturing overhead cost |
|
|
|
$ |
3,027,000 |
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| Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. |
|
Mona Loa |
Malaysian |
| Expected sales |
98,000 |
pounds |
1,000 |
pounds |
| Batch size |
9,800 |
pounds |
200 |
pounds |
| Setups |
2 |
per batch |
2 |
per batch |
| Purchase order size |
19,600 |
pounds |
200 |
pounds |
| Roasting time per 100 pounds |
1.0 |
hour |
1.0 |
hour |
| Blending time per 100 pounds |
0.5 |
hour |
0.5 |
hour |
| Packaging time per 100 pounds |
0.1 |
hour |
0.1 |
hour |
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| 1. |
Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following:
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| a. |
Determine the predetermined overhead rate that will be used during the year. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
|
| Predetermined overhead rate |
$ per DLH |
| b. |
Determine the unit product cost of one pound of Mona Loa coffee and one pound of Malaysian coffee. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)
|
|
Mona Loa |
Malaysian |
| Unit product cost |
$ |
$ |
|
| 2. |
Using activity-based costing as the basis for assigning manufacturing overhead cost to products, do the following:
|
| a. |
Determine the total amount of manufacturing overhead cost assigned to the Mona Loa coffee and to the Malaysian coffee for the year. (Omit the "$" sign in your response.)
|
|
Mona Loa |
Malaysian |
| Total amount of manufacturing overhead cost |
$ |
$ |
|
b.
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Using the data developed in (2a) above, compute the amount of manufacturing overhead cost per pound of Mona Loa coffee and Malaysian coffee. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
|
|
Mona Loa |
Malaysian |
| Manufacturing overhead cost per pound |
$ |
$ |
|
| c. |
Determine the unit product cost of one pound of Mona Loa coffee and one pound of Malaysian coffee.(Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)
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|
Mona Loa |
Malaysian |
| Unit product cost of one pound |
$ |
$ |