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Coffee Bean Incorporated (CBI) processes and distributes high-quality coffee. CBI buys coffee beans from around the world and roasts, blends, and packages them for resale. Currently, the firm offers 2 coffees to gourmet shops in I-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. CBI prices its coffee at full product cost, including allocated overhead, plus a markup of 30%. If its prices 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 $3,014,000, which has been allocated on the basis of each product's direct labor cost. The budgeted direct labor cost for the current year totals $600,000. The firm budgeted $6,000,000 for purchase and use of direct materials (mostly coffee beans). The budgeted direct costs for I-pound bags are as follows: 724, 146, 96, 962, 33, 700 337 , 261, 26, 100 Direct materials Direct labor Mona Loa $ 4.20 0.30 Malaysian $ 3.20 0.30 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: Activ ity Purchasing Materials handling Quality control Roast ing Blending Packaging Total factory overhead cost Cost Purchase Setups Batches Roasting Blending Driver orders hours hours Budgeted Driver Consumption 1, 168 1,810 730 Budgeted Cost $ 584,000 Packaging hours Data regarding the current year's production for the Mona Loa and Malaysian lines follow. There is no beginning or ending direct materials inventory for either of these coffees. Budgeted sales Batch size Setups Purchase order Roasting time Blending time Packaging time s ize Mona Loa 100,000 pounds 10,000 pounds 3 per batch 25,000 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds Malays ian 2,000 pounds 500 pounds 3 per batch 500 pounds 1 hour per 100 pounds 0.5 hour per 100 pounds 0.1 hour per 100 pounds