MANAGING AND MEASURING COST ASSIGNMENT #2

LT-3 De Leon, Dom; Gonzales, Rage; Macawile, Mark, Palteng, Neil

1. Using Coffee Bean Inc.'s current product costing system,
a. Determine the company's predetermined overhead rate using direct labor as the single cost driver

Predetermined factory overhead rate = Budgeted Overhead/ Budgeted Cost Driver

Predetermined factory overhead rate $ 5.00

Budgeted Overhead $ 3,000,000.00
Budgeted Driver $ 600,000.00

b. Determine the full product costs and selling prices of one pound of Mona Lee coffee and one pound of Malaysian Coffee

Product Costs: Mona Loa Malaysian

Direct Costs:
Direct Materials $ 4.20 $ 3.20
Direct Labor $ 0.30 $ 0.30
Indirect Costs:
Factory Overhead(0.3 x $5.00) $ 1.50 $ 1.50
Total Costs $ 6.00 $ 5.00
Mark up 30% 30%
Selling Prices $ 7.80 $ 6.50
MANAGING AND MEASURING COST ASSIGNMENT #2
LT-3 De Leon, Dom; Gonzales, Rage; Macawile, Mark, Palteng, Neil

2. Using an activity-based costing approach, develop a new product cost for one pound of
Mona Loa coffee and one pound of Malaysian coffee. Alocate all overhead costs to the
100,000 pounds of Mona Loa and 2,000 pounds of Malaysian. Compare the results with those
in requirement 1.

Acitivity Cost Driver Budgeted Activity Budgeted Cost Cost per unit
Purchasing Purchase orders 1,158.00 $ 579,000.00 500
Material Handling Setups 1,800.00 $ 720,000.00 400
Quality Control Batches 720.00 $ 144,000.00 200
Roasting Roasting-hours 96,100.00 $ 961,000.00 10
Blending Blending-hours 33,600.00 $ 336,000.00 10
Packaging Packaging-hours 26,000.00 $ 260,000.00 10

Mona Loa Malaysian

Budgeted Sales (lbs) 100,000.00 2,000.00
Purchase orders size (lbs) 25,000.00 500.00
Setups(per batch) 3.00 3.00
Batches(lbs) 10,000.00 500.00
Roasting-hours(hr/lbs) 0.01 0.01
Blending-hours(hr/lbs) 0.01 0.01
Packaging-hours(hr/lbs) 0.001 0.001

Product Costs: Mona Loa Malaysian

Direct Costs:
Direct Materials $ 4.20 $ 3.20
Direct Labor $ 0.30 $ 0.30
Indirect Costs:
Purchasing
(orders x cost per unit /lbs)
$ 0.02 $ 1.00
Material Handling
(setups x cost per unit/lbs.)
$ 0.12 $ 2.40
Quality Control
(batches x cost per unit/lbs.)
$ 0.02 $ 0.40
Roasting
(hours x cost per unit/lbs.)
$ 0.10 $ 0.10
Blending
(hours x cost per unit/lbs.)
$ 0.05 $ 0.05
Packaging
(hours x cost per unit/lbs.)
$ 0.01 $ 0.01
Total Unit Cost $ 4.82 $ 7.46

Mona Loa Malaysian

Job Costing $ 6.00 $ 5.00
ABC $ 4.82 $ 7.46

The ABC result shoes a decrease in total cost for Mona Loa and increased in total cost for
Malaysian compared to Jobcosting cost in requirement 1. The computation provided a
soluton wherein one prodcut dont only subsidize the whole process. ABC provided an exact
cost allocation for each activity done in each product
MANAGING AND MEASURING COST ASSIGNMENT #2
LT-3 De Leon, Dom; Gonzales, Rage; Macawile, Mark, Palteng, Neil

3. Coffee Bean Inc can use the activity-based costing to identify which product has a low cost
competitive advangtage. ABC will be very helpful because the company can change its pricing and
product mix strategies by having the cost information generated by ABC.

In the case, ABC provided an information that tells us that the main reason for the Malaysian coffee to
have higher cost in not because of expensive ingredients but becauses in the wa it is processed.
Hence, Coffee Bean Inc. can gain high margin and profit on Malaysian Coffee if they can lower the cost
of processing for the Malaysian Coffee