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World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee.;The company buys coffee beans from...

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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 major;cost is raw materials, however, there is a substantial amount of manufacturing overhead 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, while a few of the newer blends;have very low volumes. WGCC prices its coffee at full product cost, including allocated overhead, plus;a markup of 30 percent. If prices for certain coffees are significantly higher than market, adjustments;are made. The company competes primarily on the quality of its products, but customers are priceconscious;as well.;Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has been allocated;on 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 coffee;beans) will total $6,000,000.;The expected prime costs for one-pound bags of two of the company?s products are as follows;Kona Malaysian;Direct material............................................................................................................................. $3.20 $4.20;Direct labor...................................................................................................................................30.30;WGCC?s controller believes the traditional product-costing system may be providing misleading;cost information. She has developed an analysis of the 20x1 budgeted manufacturing-overhead costs;shown in the following chart.;Activity Cost Driver Budgeted Activity Budgeted Cost;Purchasing................................ Purchase orders........................... 1,158..................... $ 579,000;Material handling....................... Setups......................................... 1,800..................... 720,000;Quality control............................ Batches........................................ 720..................... 144,000;Roasting.................................... Roasting hours.............................. 96,100...................... 961,000;Blending.................................... Blending hours.............................. 33,600...................... 336,000;Packaging................................. Packaging hours........................... 26,000...................... 260,000;Total manufacturing-overhead cost....................................................................................................... $3,000,000;Data regarding the 20x1 production of Kona and Malaysian coffee are shown in the following;table. There will be no raw-material inventory for either of these coffees at the beginning of the year.;Kona Malaysian;Budgeted sales..................................................................................................... 2,000 lb. 100,000 lb.;Batch size............................................................................................................ 500 lb. 10,000 lb.;Setups................................................................................................................. 3 per batch 3 per batch;Purchase 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.

 

Paper#75464 | Written in 18-Jul-2015

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