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BUSA 40049-CBI buys coffee beans from around the world and roasts

The goal is to have the best presentation for management to understand theissue.Grading is based on following the instructions.Part 1: Traditional costing: 35 points.Under ABC, each activity should have a cost per pound (not just an overalloverhead) for 30 points.Format and final ABC question: 35 points. Case Study:CBI buys coffee beans from around the world and roasts, blends, and packages themfor resale. The major cost is direct materials; however, there is substantialmanufacturing overhead in the predominantly automated roasting and packing process.The company uses relatively little direct labor. Some of the coffees are very popularand sell in large volumes, whereas a few of the newer blends sell in very low volumes.CBI prices its coffee at budgeted cost, including allocated overhead, plus a markup oncost of 30%. Data for 2013 budget include manufacturing overhead of $3,000,000,which has been allocated on the basis of each product’s budgeted direct-labor cost.The budgeted direct-labor cost for 2013 totals $600,000. Purchases and use ofmaterials (mostly coffee beans) are budgeted to total $6,000,000.The budgeted direct costs for one-pound bags of two of the company’s products are:Mauna LoaMalaysianDirect MaterialsDirect Labor $4.20.30 $3.20.30 CBI’s controller believes the existing simple cost system may be providing misleadingcost information. She has developed an activity-based analysis of the 2013 budgetedmanufacturing costs, which is shown in the following table:ActivityPurchasingMaterial HandlingQuality ControlRoastingBlendingPackaging Cost DriverPurchase ordersLoads movedBatchesRoasting-hoursBlending-hoursPackaging-hours Cost-Driver-Rate$500400240101010 Budgeted data regarding the 2013 production of the Mauna Loa and Malaysian coffeefollow. There will be no beginning or ending material inventory for either of thesecoffees.Mauna Loa Malaysian Expected SalesPurchase ordersBatchesLoads movedRoasting-hoursBlending-hoursPackaging-hours 100,000 pounds410301,000500100 2,000 pounds441220102 Required:1. Using CBI’s simple costing system:a. Determine the company’s 2013 budgeted manufacturing overhead rate usingdirect-rate cost as the single allocation base.Manufacturing overhead allocated / Budgeted Direct Labor Costb. Determine the 2013 budgeted costs and selling price of 1 pound of MaunaLoa coffee and 1 pound of Malaysian coffee.2. Use the controller’s activity-based approach to estimate the 2013 cost of 1 pound ofa. Mauna Loa coffeeb. Malaysian coffeeWhat does ABC tell you that traditional costing does not with regard to this case study?

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