ACTIVITY-BASED COSTING
5-56
(New Product cost, under ABC: $7.46 per pound of Kona)
World Gourmet Coffee Company 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 predominately automated roasting and packing process. The company uses
relatively direct labor.
Some of the coffees are very popular and sell in large volumes, while few of the newer
blends have very low volumes. WGCC prices its’ coffee at full product cost, including allocated
overhead, plus a markup of 30 percent. If prices for certain coffees are significantly higher than
market, adjustments are made. The company competes primarily on the high quality of its
products, but customers’ are price conscious as well.
Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has
been allocated on the basis of of each product’s direct labor cost. The budgeted direct-labor
cost for 20x1 totals $600,000. Based on sales budget and raw materials budget, purchases and
the use of raw materials (mostly coffee beans) will total $6,000,000. The expected prime cost
for one-pound bags of two of the company’s products are as followed:
Kona
Direct Material
Direct Labor $3.20
.30 Malaysian
$4.20
.30 WGCC controller believes the traditional product costing system maybe providing misleading
cost information. She has developed an analysis of 20x1 budgeted manufacturing overhead
cost shown in the following chart.
ACTVITY
Purchasing
Material Handling
Quality Control
Roasting
Blending
Packaging COST DRIVER
Purchase Orders
Setup
Batches
Roasting Hours
Blending Hours
Packaging Hours Total Manufactering Overhead BUDGETED ACTIVITY
1,158
1,800
720
96,100
33,600
26,000 BUDGETED COST
$ 579,000
720,000
144,000
961,000
336,000
260,000
$3,000,000 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
Set-ups
Purchase Order Size
Roasting Time
Blending Time
Packaging Time KONA
2000 lbs
500l bs
3 per batch
500 lbs
1hr per 100 lb
5hr per 100 lb
1hr per 100 lb MALAYSIAN
100,000lbs
10,000lbs
3 per batch
25,000 lb
1hr per 100 lb
5hr per 100 lb
1 he per 100 lb Required:
Using WGCC 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 cost and
selling prices of one pound of Kona coffee and Malaysian coffee.
2) Develop a new product cost, using activity based costing approach, for one pound of Kona
coffee and one pound of Malaysian coffee.
3) What are the implications of activity based costing system with respect to (a) The use of
direct labor as a basis for applying overhead to product(s)? (B) The use of the existing product
costing system as the basis for pricing?

 

• 1492742619-problems out of book.docx
• 1492742620-P5-56 student template.xlsx

SuperTutor

(15)

Status NEW Posted 21 Apr 2017 02:04 AM My Price 20.00

-----------

Attachments

file 1492742629-Solutions file.docx preview (56 words )

S-----------olu-----------tio-----------ns -----------fil-----------e -----------Hel-----------lo -----------Sir-----------/Ma-----------dam----------- T-----------han-----------k y-----------ou -----------for----------- yo-----------ur -----------int-----------ere-----------st -----------and----------- bu-----------yin-----------g m-----------y p-----------ost-----------ed -----------sol-----------uti-----------on.----------- Pl-----------eas-----------e p-----------ing----------- me----------- on----------- ch-----------at -----------I a-----------m o-----------nli-----------ne -----------or -----------inb-----------ox -----------me -----------a m-----------ess-----------age----------- I -----------wil-----------l b-----------e q-----------uic-----------kly----------- on-----------lin-----------e a-----------nd -----------giv-----------e y-----------ou -----------exa-----------ct -----------fil-----------e a-----------nd -----------the----------- sa-----------me -----------fil-----------e i-----------s a-----------lso----------- se-----------nt -----------to -----------you-----------r e-----------mai-----------l t-----------hat----------- is----------- re-----------gis-----------ter-----------ed -----------onÂ----------- th-----------is -----------web-----------sit-----------e. ----------- H-----------YPE-----------RLI-----------NK -----------&qu-----------ot;-----------htt-----------p:/-----------/wo-----------rkb-----------ank-----------247-----------.co-----------m/&-----------quo-----------t; -----------\t -----------&qu-----------ot;-----------_bl-----------ank-----------&qu-----------ot;----------- -----------Tha-----------nk -----------you----------- -----------

Not Rated(0)

• Buy Answer