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%.) Activity Purchasing Materials handling Quality control Roasting Blending Packaging Budgeted Activity Budgeted Cost 1,328 $ 664,000 1,970 $ 788,000 890 $ 178,000 97,800 $ 978,000 35,300 $ 353,000 277,000 $ 3,238,000 27,700 $ Usage Based Rate Practical Capacity at Current Spending 1,740 2,740 1,540 103,400 39,400 33,400 Usage % Practical Capacity Rate Unused Capacity Idle Capacity Cost

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 overhead is incurred in the predominantly automated roasting and packing process. The company uses relatively little direct labor.

 

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 factory overhead costs:

 

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%.)

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%.)
Activity
Purchasing
Materials handling
Quality control
Roasting
Blending
Packaging
Budgeted
Activity
Budgeted Cost
1,328 $
1,970 $
890 $
97,800 $
35,300 $
27,700 $
$
664,000
788,000
178,000
978,000
353,000
277,000
3,238,000
Usage Based
Rate
Practical
Capacity at
Current
Spending
1,740
2,740
1,540
103,400
39,400
33,400
Usage %
Practical
Capacity Rate
Unused
Capacity
Idle Capacity
Cost
Transcribed Image Text: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%.) Activity Purchasing Materials handling Quality control Roasting Blending Packaging Budgeted Activity Budgeted Cost 1,328 $ 1,970 $ 890 $ 97,800 $ 35,300 $ 27,700 $ $ 664,000 788,000 178,000 978,000 353,000 277,000 3,238,000 Usage Based Rate Practical Capacity at Current Spending 1,740 2,740 1,540 103,400 39,400 33,400 Usage % Practical Capacity Rate Unused Capacity Idle Capacity Cost
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