COFFEE BEAN INC.

CASE STUDY

a) Predetermined Overhead Rate

(POHR)can be calculated by dividing
estimated total manufacturing overhead
cost by estimates total activity base.
POHR = Estimated total MOH Cost/
Estimated Total Activity Base
= $ 3.000.000/ 50.000 HDL
= $60 / DLH

Mona Loa

Malaysia

Direct Materials

$4,20

$3,20

Direct Labor

$0,30

$0,30

MOH (0,025 DLH X $60/ DLH)

$1,50

$1,50

Total Unit product cost of one

pound

$6,00

$5,00

POHR by activity center

(a)

Estimated
Overhead cost

Purchasing

$513.000,00

1710

orders

Material
Handling

$720.000,00

1800

setups

Quality Control

$ 144.000,00

600

batches

Roasting

$961.000,00

96100

Blending

$402.000,00

Packaging

$260.000,00

Total MOH

$300.000,00

Expected Activity

roasting
hours
blending
33500
hours
packaging
26000
hours

POHR
$
300,00
$
400,00
$
240,00
$
10,00
$
12,00
$
10,00

 MEMO TO THE PRESIDENT :

The Traditional Method results in the allocation of
high per unit costs.
Activity Based Method are more accurately
allocates MOH cost to product; it is likely that its
cost of production will increase many folds
resulting in relatively few amounts of revenue
On the basis of these two important findings, it is
suggested to the organization to use the activity
based methods in allocating the costs. So, it can
increase the efficiency of their cost allocations.