Coffee Bean, Inc. (CBI) buys coffee beans from around the world and roasts, blends, and packages them for resale. The major cost is direct materials; however, there is substantial manufacturing overhead in the predominantly automated roasting and packing process. The company uses relatively little direct labor.

Some of the coffees are very popular and 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 on cost of 30%.

Data for the 2006 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 2006 totals $600,000. Purchases and use of materials (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:

CBI's controller believes the existing simple costing system may be providing misleading cost information. She has developed an activity-based analysis of the 2006 budgeted manufacturing overhead costs, which is shown in the following table:

Budgeted data regarding the 2006 production of the Mauna Loa and Malaysian coffee follow. There will be no beginning or ending materials inventory for either of these coffees.

Required
1. Using CBI's simple costing system: Required
a. Determine the company's 2006 budgeted manufacturing overhead rate using direct-labor cost as the single allocation base.
b. Determine the 2006 budgeted costs and selling prices of 1 pound of Mauna Loa coffee and 1 pound of Malaysian coffee.
2. Use the controller's activity-based approach to estimate the 2006 budgeted cost for 1 pound of
a. Mauna Loa coffee
b. Malaysian coffee

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Malaysian $3.20 0.30 Mauna Loa Direct materials Direct labor $4.20 0.30 Activity Cost Driver Cost-Driver Rate Purchasing Purchase orders Materials handling Loads moved Quality control Batches Roasting Blending Packaging $500 400 240 10 10 10 Roasting-hours Blending-hours Packaging-hours Mauna Loia Malaysian Expected sales Purchase orders Batches Loads moved Roasting-hours Blending-hours Packaging-hours 100,000 pounds 2,000 pounds 10 30 1,000 500 100 12 20 10