Question

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Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 15 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred 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, a few of the newer brands have very low volumes. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices for certain coffees are significantly higher than the market, CBI lowers its prices. The company competes primarily on the quality of its products, but customers are price conscious as well. Data for the current budget include factory overhead of $3,100,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $601,000. The firm budgeted $6,100,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for 1-pound bags of two of the company's many products are as follows: Direct materials Direct labor Mona Loa Malaysian $ 4.20 $ 3.20 0.300 .30 CBI's controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year's budgeted factory overhead costs: Activity Purchasing Materials handling Quality control Roasting Blending Packaging Total factory overhead cost Cost Driver Purchase orders Setups Batches Roasting hours Blending hours Packaging hours Budgeted Activity 1,168 1,810 730 96, 200 33,700 26,100 Budgeted Cost 580,000 721,000 145,000 962,000 337,000 261,000 $ 3,006,000 Data regarding the current year's production of just two of its lines, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees.

Answer 1

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Coffee Bean Inc.
Ans 2- Workings
	Mona Loa	Malaysian
Expected Sales	101,000.00	2,010.00
Batch Size	10,100.00	510.00
Number of Batches	10.00	3.94
Setups per Batch	3.00	3.00
Number of Setups	30.00	11.82
Purchase Orders Size	25,100.00	510.00
Purchase Orders	4.02	3.94
Roasting time per 100 pound	1.00	1.00
Roasting Hours	1,010.00	20.10
Blending time per 100 pound	0.50	0.50
Blending Hours	505.00	10.05
Packaging time per 100 pound	0.10	0.10
Packaging Hours	101.00	2.01

			B	C=A/B	D	E=D*C	D	E=D*C
					Mona Loa	Malaysian
Activity	Cost Driver	Cost Pool	Cost Driver Volume	Cost per Cost Driver	Cost Driver used	Cost allocated	Cost Driver used	Cost allocated
Purchasing	Purchase Orders	580,000.00	1,168.00	496.58	4.02	1,998.17	3.94	1,957.09	See workings above.
Material Handling	Number of setups	721,000.00	1,810.00	398.34	30.00	11,950.28	11.82	4,709.81	See workings above.
Quality Control	Number of batches	145,000.00	730.00	198.63	10.00	1,986.30	3.94	782.84	See workings above.
Roasting	Roasting Hours	962,000.00	96,200.00	10.00	1,010.00	10,100.00	20.10	201.00	See workings above.
Blending	Blending Hours	337,000.00	33,700.00	10.00	505.00	5,050.00	10.05	100.50	See workings above.
Packaging	Packaging Hours	261,000.00	26,100.00	10.00	101.00	1,010.00	2.01	20.10
Total Activity Cost		3,006,000.00				31,084.75		7,751.24
Expected Sales						101,000.00		2,010.00
Overhead per unit						0.31		3.86
Direct Materials						4.20		3.20
Direct Labor						0.30		0.30
Unit Product cost						4.81		7.36