Coffee bean inc cbi is a processor and distributor of a

Reference no: EM13585551

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.

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.

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.

The expected costs for direct materials and direct labor for one-pound bags of two of the company's coffee products appear below.

	Mona Loa		Malaysian
Direct materials	$	4.00	$	3.30
Direct labor (.030 hours per bag)	$	0.36	$	0.36

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

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

Required:

Using direct labor-hours as the base for assigning manufacturing overhead cost to products, do the following:

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	$	$

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.	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.)

	Mona Loa	Malaysian
Unit product cost of one pound	$	$

Reference no: EM13585551

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