AP.-'.%.DMS3S 10 Weekly lCase Assignment Coffee Bean Inc. (CHI) Coee Bean, Inc. {CED processes and distributes a variety of coffee. CBI buys coffee beans om around the world and roasts. blends. and packages them for resale. Currently the firm offers 15 coffees to gourmet shops in one-pound bags. The major cost is direct materials; however. a substantial amount of factory overhead is incurred in the predominantly automated roasting and packaging process. The company uses relatively little direct labor. Some of the coffees are very popular and sell in large volumes; a few of the newer brands have very low volumes. CBI prices its coffee at full product cost. including allocated overhead plus a markup of 30 percent. Ifits prices for certain coffees are signicantly higher than the market. ['31 lowers its prices. The company competes primarily on the quality of its products. but customers are price conscious as well. Data for the current budget include ctory overhead of 33.000000. which has been allocated by its current costing system on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals 3000.000. The rm budgeted $0.000.000 for purchases and use of direct materials [mostly coffee beans). The budgeted direct costs for onepound bags of two of the company's many products are as follows: Mona L oa l'tLalavsian Direct Materials $4.30 $3.20 Direct Labor {dollars} $0.30 $0.30 Direct Labor [hours] 0.30 0.30 (\"131's controller. Mona Clin believes that its current product costing system could be providing misleading cost information. The company calculates a predetermined overhead rate using direct labour cost as the single cost driver. Normal sales mailsup percentage is 30% of full cost. She has developed this analysis of the current year's budgeted factory overhead costs: Budgeted Driver Budgeted Activity Cost D'l'l't'E'l' Consumption lICo'st Purchasing Purchase orders 1,13 3 SS Til ,000 Materials handling Setups 1,300 $320,000 Quality control Batches 330 $144,000 Roasting Roastinghours 9 0,100 $901,000 Blending Blendinghours 3 3 ,50-0 $336,000 Packaging Packaginghours 30,000 52002000 Total factory overhead cost $3.000.000 Direct Labor Budget $600,000 Direct materials budget $6,000,000 Data regarding the current year's production of just two of the company's products, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees. Mona Loa Malaysian Budgeted Sales (pounds) 100.000 2.000 Batch size (pounds) 10.000 500 Setups (batch) 3 3 Purchase order size (pounds) 25.000 500 Roasting time (hours per 100 lbs.) 1.00 1.00 Blending time (hours per 100 lbs.) 0.50 0.50 Packaging time (hours per 100 lbs.) 0.10 0.10 Mona is wondering what the difference in full product costs and selling prices for one pound of Mona Loa coffee and one pound of Malaysian coffee under the current costing approach is compared to using an ABC approach. Allocate all overhead costs to the 100,000 pounds of Mona Loa and the 2,000 pounds of Malaysian. She would also like to know what are the implications of the ABC system with respect to CBI's product pricing? Required Prepare a report to address Mona's questions