Question

Coffee Bean Inc. (CBl) 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 overheat is incurred in the predominantly automated roasting arid packirng] 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. CEI prices its coffer 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 $ 3,700,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $ 607.000 . The firm budgeted $ 6.700 .000 for purchase and use of direct materials (mostly coffee beans).

The budgeted direct costs for 1-pound bogs of two of the company's many products are as follows.

Required:

1. Using Coffee Bean inches 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 Mona Loa coffee and one pound of Malaysian coffee.

2. Using an activity-based costing approach, develop a new product cost for 1 pound of Mona Loa coffee and 1 pound of Malaysian coffee. Allocate all overhead costs to the 107,000 pounds of Mona Loa and the 2,070 pounds of Malaysian.

Answer 1

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Coffee Bean Inc.
Ans 1 a
Calculation of predetermined overhead rate	Amount $	Note
Budgeted factory overhead	3,700,000.00	A
Budgeted direct labor cost	607,000.00	B
Predetermined overhead rate	6.10	C=A/B

Ans 1 b- Workings	Mona Loa	Malaysian	Note
Direct labor cost	0.30	0.30	D
Predetermined overhead rate	6.10	6.10	See C
Overhead allocated	1.83	1.83	E=C*D

Ans 1 b
Unit Product cost	Mona Loa	Malaysian	Note
Direct Materials	4.20	3.20
Direct Labor	0.30	0.30	See D
Overhead allocated	1.83	1.83	See E
Cost per 1 pound bag	6.33	5.33	F
Markup at 30%	1.90	1.60	G=F*30%
Sell price of 1 pound bag	8.23	6.93	H=F+G

Ans 2- Workings	Mona Loa	Malaysian	Note
Expected Sales	107,000.00	2,070.00	I
Batch Size	10,700.00	570.00	J
Number of Batches	10.00	3.63	K=I/J
Setups per Batch	3.00	3.00	L
Number of Setups	30.00	10.89	M=K*L
Purchase Orders Size	25,700.00	570.00	N
Purchase Orders	4.16	3.63	O=I/N
Roasting time per 100 pound	1.00	1.00	P
Roasting Hours	1,070.00	20.70	Q=I/100*P
Blending time per 100 pound	0.50	0.50	R
Blending Hours	535.00	10.35	S=I/100*R
Packaging time per 100 pound	0.10	0.10	T
Packaging Hours	107.00	2.07	U=I/100*T

					See workings above.
Overhead allocation table		V	W	X=V/W	Y	Z=X*Y	AA=Z/107000	AB	AC=X*AB	AD=AC/2070
					Mona Loa	Malaysian
Activity	Cost Driver	Cost Pool	Cost Driver Volume	Cost per Cost Driver	Cost Driver used	Cost allocated	Cost Per unit	Cost Driver used	Cost allocated	Cost Per unit
Purchasing	Purchase Orders	586,000.00	1,228.00	477.20	4.16	1,986.78	0.02	3.63	1,732.98	0.84
Material Handling	Number of setups	727,000.00	1,870.00	388.77	30.00	11,663.10	0.11	10.89	4,235.55	2.05
Quality Control	Number of batches	151,000.00	790.00	191.14	10.00	1,911.39	0.02	3.63	694.14	0.34
Roasting*	Roasting Hours	968,000.00	96,000.00	10.08	1,070.00	10,789.17	0.10	20.70	208.73	0.10
Blending	Blending Hours	343,000.00	34,300.00	10.00	535.00	5,350.00	0.05	10.35	103.50	0.05
Packaging	Packaging Hours	267,000.00	26,700.00	10.00	107.00	1,070.00	0.01	2.07	20.70	0.01
Total Activity Cost		3,042,000.00				31,700.44	0.30		6,974.89	3.37
Expected Sales						107,000.00			2,070.00
Overhead per unit						0.30			3.37

* Please note that the image is not clear and so I cannot identify if Roasting hours is 96,000 hours or 96,800. Please correct form your side. The formula is correct so your answers will be correct too.

Ans 2
Unit Product cost	Mona Loa	Malaysian
Direct unit costs	Amount $	Amount $	Amount $	Amount $
Direct Materials	4.20		3.20
Direct Labor	0.30	4.50	0.30	3.50
Indirect unit costs
Purchasing		0.02		0.84
Material Handling		0.11		2.05
Quality Control		0.02		0.34
Roasting		0.10		0.10
Blending		0.05		0.05
Packaging		0.01		0.01
Total Unit cost		4.81		6.88