$Java Source, Inc. (JSI) purchases coffee beans from around the world and roasts, blends and packages them for resale. Some of JSI's coffees are very popular and sell in high volumes, while some of the newer blends sell in very low volumes. JSI prices its coffees at cost of manufacture plus a 25% surcharge.

For next year, JSI's budget includes estimated manufacturing overhead costs of $2,200,000. JSI allocates manufacturing overhead to products based on direct labor hours. The expected direct labor cost totals $600,000, which represents 50,000 hours of direct labor time. The expected direct materials and direct labor costs for one-pound bags of two of the company's coffee products are shown below.

	dark kenya	vietnamese team
Direct materials	$4.50	$2.90
Direct labor (0.02 hours per bag)	$0.34	$0.34

JSI's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether this is correct or not, the controller has prepared an analysis of the expected manufacturing overhead costs for the year, as shown in the following table:

Activity Cost Pool	activity measure	Activity expected for the year	Expected cost for the year
Purchasing	purchase orders	2000 orders	$560,000
Material handling	Number of configurations	1,000 configurations	$193,000
QA	Number of lots	500 lots	$90,000
Roast	roasting hours	95,000 roasting hours	$1,045,000
Mix	mixing hours	32,000 mixing hours	$192,000
packaging	Packing Hours	24,000 packaging hours	$120,000
Total Cost of Manufacturing Overhead			$2,200,000

Data on the expected production of Kenya Dark and Viet Select coffee are presented below.

	dark kenya	vietnamese team
Expected sales	80,000 pounds	4,000 pounds
Lot Size	5,000 pounds	500 pounds
settings	2 per lot	2 per lot
Purchase order size	20,000 pounds	500 pounds
Roasting Time per 100 Pounds	1.5 hours roasting	1.5 hours roasting
Blend time per 100 pounds	0.5 hours of smoothie	0.5 hours of smoothie
Packing Time for 100 Pounds	0.3 hours of packaging	0.3 hours of packaging

Required:

1. Using direct labor hours as the manufacturing overhead cost allocation basis, do the following:

to. Determine the predetermined overhead rate for the entire plant that will be used during the year.

b. Determine the unit cost of the product of one pound of Kenya Dark coffee and one pound of Viet Select coffee.

2. When using the activity-based absorption costing method, do the following:

to. Determine the total amount of manufacturing overhead costs allocated to Kenya Dark coffee and Viet Select coffee for the year

b. Using the data developed in (2a) above, calculate the amount of manufacturing overhead per pound for Kenya Dark Coffee and Viet Select Coffee.

C. Determine the unit cost of the product of one pound of Kenya Dark coffee and one pound of Viet Select coffee

Answer rating: 100% (QA)

Using Direct Labor Hours as the Manufacturing Overhead Cost Allocation Basis a Predetermined Overhea... View the full answer