$2\mathrm{.}1$ Apply cost system design techniques as tools for improving company performance.

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Topic for Discussion

Intelligentsia, a company based in Chicago $($intelligentsiacoffee$.$com$),$ sources coffee beans globally and prepares them for resale by roasting, blending, and packaging. The majority of the expense is attributed to direct materials; nevertheless, Intelligentsia faces significant costs related to manufacturing overhead as a result of its use of automated packing and roasting processes. Direct labor constitutes only a minor portion of Intelligentsia's operations.

While certain coffees from Intelligentsia are well$-$liked and experience high sales volumes, others like the Summer Solstice blend have lower demand. To price their coffee, Intelligentsia factors in budgeted expenses $($including allocated overhead costs$)$ as well as an additional $30\%$ markup on cost$.$

The $2023$ budget comprises a manufacturing overhead of $$3,000,000$ that has been allocated based on the anticipated direct$-$labor cost for each product. The total budgeted direct$-$labor cost for $2023$ amounts to $$600,000.$ In addition, purchases and usage of materials $($mainly coffee beans$)$ are estimated to reach an amount totaling $$6$ million in the upcoming year's finances.

The planned expenses directly associated with the production of one$-$pound bags for two products offered by the company are:

The projected expenses directly associated with producing one$-$pound bags.

The Summer Solstice at Mauna Loa

The cost of direct materials is $$4\mathrm{.}20$ and $$3\mathrm{.}20,$ respectively.

The cost of direct labor is $$0\mathrm{.}30$ per unit.

Thirty cents

The controller at Intelligentsia has doubts about the accuracy of cost information from their current uncomplicated or customary costing system. Consequently, she devised a more sophisticated activity$-$based model centered on six activities:

Analyzing the $2023$ Budget through Activity$-$Based Methods

Activity $-$ Cost Driver $-$ Rate of the Cost$-$Driver

Acquiring items through purchase orders costing $$500.$

The cost of moving materials with loads is $$400.$

$$240$ for quality control batches.

The cost of roasting per hour is $$10.$

The cost of blending per hour is $$10.$

Package labor is charged at $$10$ per hour.

Projected Production Data for $2023$

Summer Solstice Sales and Activities at Mauna Loa

Projected revenue is $100,000$ pounds with a margin of $2,000$ pounds.

There are four purchase orders.

$10$ batches of $4.$

$30$ loads were moved on the $12$th$.$

$1,000$ roasting hours in $20.$

Blending for $500$ hours at a rate of $10.$

$2$ hours of packaging $=100.$

Mandatory

Determine the costs using either Intelligentsia's traditional or simple costing system.

The manufacturing overhead rate for the company's $2023$ budget will be allocated solely based on direct labor.

The $2023$ anticipated expenditures and retail prices for a pound of Mauna Loa and a pound of Summer Solstice.

For estimating the budgeted cost of one pound in $2023,$ employ the activity$-$based approach provided by the controller.

Coffee produced from the Mauna Loa region.

Coffee for the Summer Solstice

Assign all expenses to the $100,000$ pounds of Mauna Loa and the $2,000$ pounds of Summer Solstice. Contrast your findings with those from step one.

Compose a concise memo for the President of Intelligentsia, summarizing your observations and discoveries from sections $1$ and $2$ while also examining how utilizing direct labor as an anchor point when apportioning manufacturing overhead expenses to commodities might affect Intelligentsia.