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Accounting 650 Problem 5-56 p.218 and p.219 Exercise 1, 2, 3

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Question;Accounting 650 Problem 5-56 p.218 and p.219 Exercise 1, 2, 3 World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee.The company buys coffee beans from around the world and roasts, blends, and packages them for resale.WGCC currently has 15 different coffees that it offers to gourmet shops in one-pound bags. The majorcost is raw materials, however, there is a substantial amount of manufacturing overhead in the predominantlyautomated roasting and packing process. The company uses relatively little direct labor.Some of the coffees are very popular and sell in large volumes, while a few of the newer blendshave very low volumes. WGCC prices its coffee at full product cost, including allocated overhead, plusa markup of 30 percent. If prices for certain coffees are significantly higher than market, adjustmentsare made. The company competes primarily on the quality of its products, but customers are priceconsciousas well.Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has been allocatedon the basis of each product?s direct-labor cost. The budgeted direct-labor cost for 20x1 totals $600,000.Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffeebeans) will total $6,000,000.The expected prime costs for one-pound bags of two of the company?s products are as follows:Kona MalaysianDirect material............................................................................................................................. $3.20 $4.20Direct labor...................................................................................................................................30.30WGCC?s controller believes the traditional product-costing system may be providing misleadingcost information. She has developed an analysis of the 20x1 budgeted manufacturing-overhead costsshown in the following chart.Activity Cost Driver Budgeted Activity Budgeted CostPurchasing................................ Purchase orders........................... 1,158..................... $ 579,000Material handling....................... Setups......................................... 1,800..................... 720,000Quality control............................ Batches........................................ 720..................... 144,000Roasting.................................... Roasting hours.............................. 96,100...................... 961,000Blending.................................... Blending hours.............................. 33,600...................... 336,000Packaging................................. Packaging hours........................... 26,000...................... 260,000Total manufacturing-overhead cost....................................................................................................... $3,000,000Data regarding the 20x1 production of Kona and Malaysian coffee are shown in the followingtable. There will be no raw-material inventory for either of these coffees at the beginning of the year.Kona MalaysianBudgeted sales..................................................................................................... 2,000 lb. 100,000 lb.Batch size............................................................................................................ 500 lb. 10,000 lb.Setups................................................................................................................. 3 per batch 3 per batchPurchase order size.............................................................................................. 500 lb. 25,000 lb.Roasting time....................................................................................................... 1 hr. per 100 lb. 1 hr. per 100 lb.Blending time........................................................................................................5 hr. per 100 lb..5 hr. per 100 lb.Packaging time......................................................................................................1 hr. per 100 lb..1 hr. per 100 lb.? Problem 5?56Activity-Based Costing(LO 1, 2, 4, 5, 7)2. New product cost, underABC: $7.46 per pound ofKonaExChapter 5 Activity-Based Costing and Management 219Required:1. Using WGCC?s current product-costing system:a. Determine the company?s predetermined overhead rate using direct-labor cost as the singlecost driver.b. Determine the full product costs and selling prices of one pound of Kona coffee and onepound of Malaysian coffee.2. Develop a new product cost, using an activity-based costing approach, for one pound of Konacoffee and one pound of Malaysian coffee.3. What are the implications of the activity-based costing system with respect toa. The use of direct labor as a basis for applying overhead to products?b. The use of the existing product-costing system as the basis for pricing?(CMA, adapted)Knickknack, Inc. manufactures two products: odds and ends. The firm uses a single, plantwide overheadrate based on direct-labor hours. Production and product-costing data are as follows:Odds EndsProduction quantity...................................................................................... 1,000 units 5,000 unitsDirect material............................................................................................. $ 40 $ 60Direct labor (not including setup time)...........................................................

 

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