Determine the activity rates based on practical capacity and the cost of idle capacity for each activity. (Round "Usage %" and "Practical Capactity Rate" to 2 decimal places. For percentages .1234 = 12.34%.)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in 1-pound bags. The major cost is direct materials; however, a substantial amount of factory
CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices 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 $3,238,000, which has been allocated on the basis of each product’s direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of direct materials (mostly coffee beans).
The budgeted direct costs for 1-pound bags are as follows:
| Mona Loa | Malaysian | |
|---|---|---|
| Direct materials | $ 4.20 | $ 3.20 |
| Direct labor | 0.30 | 0.30 |
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
| Activity | Cost Driver | Budgeted Driver Consumption | Budgeted Cost |
|---|---|---|---|
| Purchasing | Purchase orders | 1,328 | $ 664,000 |
| Materials handling | Setups | 1,970 | 788,000 |
| Quality control | Batches | 890 | 178,000 |
| Roasting | Roasting hours | 97,800 | 978,000 |
| Blending | Blending hours | 35,300 | 353,000 |
| Packaging | Packaging hours | 27,700 | 277,000 |
| Total factory overhead cost | $ 3,238,000 |
Data regarding the current year’s production for the Mona Loa and Malaysian lines follow. There is no beginning or ending direct materials inventory for either of these coffees.
| Mona Loa | Malaysian | |
|---|---|---|
| Budgeted sales | 100,000 pounds | 2,000 pounds |
| Batch size | 10,000 pounds | 500 pounds |
| Setups | 3 per batch | 3 per batch |
| Purchase order size | 25,000 pounds | 500 pounds |
| Roasting time | 1 hour per 100 pounds | 1 hour per 100 pounds |
| Blending time | 0.5 hour per 100 pounds | 0.5 hour per 100 pounds |
| Packaging time | 0.1 hour per 100 pounds | 0.1 hour per 100 pounds |
Coffee Bean has total practical capacity as noted in the table below, i.e. processing 1,740 purchase orders, 2,740 setups, etc. These are the levels of activity work that are sustainable.
| Activity | Practical Capacity |
|---|---|
| Purchasing | 1,740 |
| Materials handling | 2,740 |
| Quality control | 1,540 |
| Roasting | 103,400 |
| Blending | 39,400 |
| Packaging | 33,400 |
Required:
1. Determine the activity rates based on practical capacity and the cost of idle capacity for each activity. (Round "Usage %" and "Practical Capactity Rate" to 2 decimal places. For percentages .1234 = 12.34%.)
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