Question
In: Accounting
French Press Coffee Inc. (HFC) processes and distributes a variety of coffees. HFC buys coffee beans...
French Press Coffee Inc. (HFC) processes and distributes a variety of coffees. HFC buys coffee beans from around the world and roasts, blends, and packages them for resale. HFC sells one-pound bags of coffee throughout a series of gourmet shops. the company has low direct labor costs but very high factory overhead.
Data for the 2018 budget includes factory overhead of $2,393,500, which is currently being allocated based on direct labor cost. Budgeted direct labor is $100000.
The budgeted direct costs for a one pound bag of the two most popular coffee blends are as follows:
| Presque Isle Blend | Mentor Headlands blend | |
|
Direct material |
$4.25 | $3.50 |
| Direct labor cost | $0.95 | $0.75 |
The controller believed the current costing system generates misleading information. She has developed the following details:
| Activity | Cost Driver |
Budgeted Cost |
| Purchasing | #Purchase Orders | $474000 |
| Material Handling | #Setups | $638000 |
| Quality Control | #batches | $67500 |
| Roasting | Roasting Hours | $920000 |
| Blending | Blending Hours | $190000 |
| Packaging | Packaging Hours | $103000 |
Total Budgeted cost- $2,392,500
Additional information:
| Presque Isle Blend | Mentor Headlands Blend | |
| Sales in units | $100000 pounds | 5000 pounds |
|
Selling price per unit |
$30 | $24 |
| number of batches | 50 | 5 |
| Number of setups | 3 per batch | 3 per batch |
| purchase orders | 4 | 6 |
| roasting time | 1 hour per 100 pounds | 1 hour per 350 pounds |
| blending time | 0.50 hour per 100 pounds |
0.50 hour per 250 pounds |
| packaging time | 0.20 hour per 1000 pounds | 0.20 hour per 1000 pound |
Required: 1. Assuming manufacturing overhead is allocated based on direct labor costs, calculate the cost per unit of Presque isle blend and mentor headlands blend.
2. Assuming the company uses Activity based costing, calculate the cost per unit of Presque Isle Blend and Mentor Headlands Blend.
3. Calculate Gross Profit for each method of costing.
Solutions
Expert Solution
Answer 1
| Budgeted factory overhead | 2,392,500 | |
| Divided by: Direct labor cost | 100,000 | |
| Overhead allocated based on direct labor cost | 2392.50% | |
| traditional costing | Presque Isle Blend | Mentor Headlands Blend |
| Direct material | 4.25000 | 3.50000 |
| Direct labor cost | 0.95000 | 0.75000 |
| Allocated overhead (Direct labor cost * 2392.50%) | 22.72875 | 17.94375 |
| Cost per unit using traditional method | $ 27.92875 | $ 22.19375 |
Answer 2
| Setup per batch | 3 | 3 |
| Multiply: number of batches | 50 | 5 |
| Setups | 150 | 15 |
| Sales in units | 100,000 | 5,000 |
| Divided by: pounds per roasting hours | 100 | 350 |
| Roasting Hours | 1,000 | 14.29 |
| Sales in units | 100,000 | 5,000 |
| Divided by: pounds per blending hours (100/0.50) and (250/0.50) respectively | 200 | 500 |
| Blending hours | 500 | 10 |
| Sales in units | 100,000 | 5,000 |
| Divided by: pounds per packings hours (1000/0.20) and (1000/0.20) respectively | 5,000 | 5,000 |
| packings hours | 20 | 1 |
| Presque Isle Blend | Mentor Headlands Blend | Total | |
| Purchase Orders | 4 | 6 | 10 |
| Setups | 150 | 15 | 165 |
| batches | 50 | 5 | 55 |
| Roasting Hours | 1,000 | 14.29 | 1,014.29 |
| Blending Hours | 500 | 10 | 510 |
| Packaging Hours | 20 | 1 | 21 |
| Activity | Cost Driver | Budgeted Cost | Divided by: Total activity | Cost driver rate |
| Purchasing | #Purchase Orders | 474,000 | 10 | 47,400.0000 |
| Material Handling | #Setups | 638,000 | 165 | 3,866.6667 |
| Quality Control | #batches | 67,500 | 55 | 1,227.2727 |
| Roasting | Roasting Hours | 920,000 | 1,014.29 | 907.0384 |
| Blending | Blending Hours | 190,000 | 510 | 372.5490 |
| Packaging | Packaging Hours | 103,000 | 21 | 4,904.7619 |
| Presque Isle Blend | Activity | Multiply: Cost driver rate | Allocated cost |
| Purchasing | 4 | 47,400.0000 | $ 189,600.00 |
| Material Handling | 150 | 3,866.6667 | $ 580,000.00 |
| Quality Control | 50 | 1,227.2727 | $ 61,363.64 |
| Roasting | 1,000 | 907.0384 | $ 907,038.42 |
| Blending | 500 | 372.5490 | $ 186,274.51 |
| Packaging | 20 | 4,904.7619 | $ 98,095.24 |
| Total allocated overhead cost to Presque Isle Blend | $ 2,022,371.81 | ||
| Divided by: units in pounds | 100,000 | ||
| Cost per unit for Presque Isle Blend | $ 20.22372 | ||
| Mentor Headlands Blend | Activity | Multiply: Cost driver rate | Allocated cost |
| Purchasing | 6 | 47,400.0000 | $ 284,400.00 |
| Material Handling | 15 | 3,866.6667 | $ 58,000.00 |
| Quality Control | 5 | 1,227.2727 | $ 6,136.36 |
| Roasting | 14.29 | 907.0384 | $ 12,961.58 |
| Blending | 10 | 372.5490 | $ 3,725.49 |
| Packaging | 1 | 4,904.7619 | $ 4,904.76 |
| Total allocated overhead cost to Mentor Headlands Blend | $ 370,128.19 | ||
| Divided by: units in pounds | 5,000 | ||
| Cost per unit for Mentor Headlands Blend | $ 74.02564 | ||
| Activity-based costing | Presque Isle Blend | Mentor Headlands Blend |
| Direct material | 4.25000 | 3.50000 |
| Direct labor cost | 0.95000 | 0.75000 |
| Allocated overhead (As above) | 20.22372 | 74.02564 |
| Cost per unit using Activity-based costing method | $ 25.42372 | $ 78.27564 |
Answer 3
| Traditional costing method | Presque Isle Blend | Mentor Headlands Blend | Total |
| Selling price per unit | $ 30.00000 | $ 24.00000 | |
| Less: Unit cost | $ 27.92875 | $ 22.19375 | |
| Gross profit per unit | $ 2.07125 | $ 1.80625 | |
| multiply: Number of units in pounds | 100,000 | 5,000 | |
| Gross profit under Traditional costing method | $ 207,125 | $ 9,031 | $ 216,156 |
| Activity-based costing | Presque Isle Blend | Mentor Headlands Blend | Total |
| Selling price per unit | $ 30.00000 | $ 24.00000 | |
| Less: Unit cost | $ 25.42372 | $ 78.27564 | |
| Gross profit per unit | $ 4.57628 | $ (54.27564) | |
| Multiply: Number of units in pounds | 100,000 | 5,000 | |
| Gross profit(loss) under Activity based costing method | $ 457,628 | $ (271,378) | $ 186,250 |
ekkarill92 answered 7 months agoRelated Solutions
Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from...
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...
Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from...
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...
Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from...
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...
Coffee Bean Inc. (CBI) processes and distributes a variety of coffee. CBI buys coffee beans from...
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...
a coffee shop buys beans 3.2$ per bag, and it sells it for 5.25 $. this...
a coffee shop buys beans 3.2$ per bag, and it sells it for 5.25
$. this coffee shop sales are 21 bag per week. its annual inventory
holding cost rate is 25% and it costs this coffee shop 20$ to place
an order with the bean supplier. if the bean supplier offers a 7%
discount on orders of 400 bags or more and 10% discount for 900
bags or more.
A) What is the optimal order quantity for the coffee...
Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys quarried local...
Oxford Concrete Inc. (OCI) processes and distributes various
types of cement. The company buys quarried local rock, limestone,
and clay from around the world and mixes, blends, and packages the
processed cement for resale. OCI offers a large variety of cement
types that it sells in one-kilogram bags to local retailers for
small do-it-yourself jobs. The major cost of the cement is raw
materials. However, the company’s predominantly automated mixing,
blending, and packaging processes require a substantial amount of
manufacturing...
CNY Coffee Inc. uses three types of coffee beans (Columbia, Java, and Brazil) as mixtures to...
CNY Coffee Inc. uses three types of coffee beans (Columbia,
Java, and Brazil) as mixtures to manufacture its two coffee
products (Energy, and Everyday). The cost per pound, the
availability, and rating information of the coffee beans are as
follows.
Coffe Bean
Cost Per Pound
Caffeine Rating
Taste Ratting
Aroma Rating
Available Pounds
Columbia
$2.25
68
90
88
695
Java
$1.70
78
63
77
880
Brazil
$1.95
85
80
95
955
Coffee product tests are used to provide ratings on...
The production planner for Fine Coffees, Inc. produces two coffee blends: American (A) and British (B)....
The production planner for Fine Coffees, Inc. produces two
coffee blends: American (A) and British (B). He can only get 300
pounds of Colombian beans per week and 200 pounds of Dominican
beans per week. Each pound of American blend coffee requires 12
ounces of Colombian beans and 4 ounces of Dominican beans, while a
pound of British blend coffee uses 8 ounces of each type of bean.
Profits for the American blend are $2.00 per pound, and profits for...
Citrus company buys a variety of citrus fruit from growers and then processes the fruit into...
Citrus company buys a variety of citrus fruit from growers and
then processes the fruit into a product line. of fresh fruit,
juices, and fruit flavorings.
Current annual sales revenue $2,000,000
Current Variable costs 35% of sales
Current Fixed costs totaled $600,000
Sweet Grove is evaluating 2 independent strategies designed to
enhance profitability. You need to refer to the original data above
to evaluate these two independent strategies.
Strategy #1. This strategy is to purchase more automated process
equipment. This...
Iowa Soy Products (ISP) buys soy beans and processes them into other soy products. Each ton...
Iowa Soy Products (ISP) buys soy beans and processes them into
other soy products. Each ton of soy beans can be converted for an
additional $200 into 500 pounds of soy meal and 100 gallons of soy
oil. A pound of soy meal can be sold at splitoff for $1 and soy oil
can be sold in bulk for $4 per gallon. ISP can process the 500
pounds of soy meal into 600 pounds of soy cookies at an additional...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- * What is the link between SOX compliance and law and information systems security? ** Why...
- A chemist has a substance which was either phenol or resorcinol. He puts the substance in...
- I need new and unique answers, please. (Use your own words, don't copy and paste), Please...
- Discuss system hardening strategies and techniques including updates and patches, default logon/passwords, anonymous access, removal of...
- What types of stories do you enjoy? Why are stories important?
- Read the privacy policy of a large, popular website. Write a brief summary. Identify the site...
- When σ is unknown and the sample is of size n ≥ 30, there are two...
ADVERTISEMENT