Coffee Bean Incorporated $($CBI$)$ processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers $15$ coffees to gourmet shops in $1-$pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred 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; 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 $30\%.$ If its prices for certain coffees are significantly higher than the market, CBI 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 factory overhead of $$3,012,000,$ which has been allocated on the basis of each product$$s direct labor cost. The budgeted direct labor cost for the current year totals $$602,000.$ The firm budgeted $$6,200,000$ for purchase and use of direct materials $($mostly coffee beans$).$

The budgeted direct costs for $1-$pound bags of two of the company$$s many products are as follows:

Mona Loa Malaysian

Direct materials $ $4\mathrm{.}20$ $ $3\mathrm{.}20$

Direct labor $0\mathrm{.}300\mathrm{.}30$

CBI$$s controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year$$s budgeted factory overhead costs:

Activity Cost Driver BudgeteCoffee Bean Incorporated $($CBI$)$ processes and distributes a variety of coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers $15$ coffees to gourmet shops in $1-$pound bags. The major cost is direct materials; however, a substantial amount of factory overhead is incurred 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; 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 $30\%.$ If its prices for certain coffees are significantly higher than the market, CBI 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 factory overhead of $$3,012,000,$ which has been allocated on the basis of each product$$s direct labor cost. The budgeted direct labor cost for the current year totals $$602,000.$ The firm budgeted $$6,200,000$ for purchase and use of direct materials $($mostly coffee beans$).$

The budgeted direct costs for $1-$pound bags of two of the company$$s many products are as follows:

$$Mona LoaMalaysianDirect materials$ $4\mathrm{.}20$$ $3\mathrm{.}20$Direct labor$0\mathrm{.}300\mathrm{.}30$

CBI$$s controller, Mona Clin, believes that its current product costing system could be providing misleading cost information. She has developed this analysis of the current year$$s budgeted factory overhead costs:

ActivityCost DriverBudgeted Driver ConsumptionBudgeted CostPurchasingPurchase orders$1,178$$ $581,000$Materials handlingSetups$1,820722,000$Quality controlBatches$740146,000$RoastingRoasting hours$96,300963,000$BlendingBlending hours$33,800338,000$PackagingPackaging hours$26,200262,000$Total factory overhead cost$$$ $3,012,000$

Data regarding the current year$$s production of just two of its lines, Mona Loa and Malaysian, follow. There is no beginning or ending direct materials inventory for either of these coffees.

$$Mona LoaMalaysianBudgeted sales$102,000$ pounds$2,020$ poundsBatch size$10,200$ pounds$520$ poundsSetups$3$ per batch$3$ per batchPurchase order size$25,200$ pounds$520$ poundsRoasting time$1$ hour per $100$ pounds$1$ hour per $100$ poundsBlending time$0\mathrm{.}5$ hour per $100$ pounds$0\mathrm{.}5$ hour per $100$ poundsPackaging time$0\mathrm{.}1$ hour per $100$ pounds$0\mathrm{.}1$ hour per $100$ pounds