Java Source, Inc. (JSI), is a processor and distributor of a variety of blends o

Question

Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells to gourmet shops in one-pound bags. The major cost of the coffee is raw materials. However, the company’s predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor.

      Some of JSI’s coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. JSI prices its coffees at manufacturing cost plus a markup of 25%, with some adjustments made to keep the company’s prices competitive.

      For the coming year, JSI’s budget includes estimated manufacturing overhead cost of $2,864,700. JSI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $564,000, which represents 47,000 hours of direct labor time. Based on the sales budget and expected raw materials costs, the company will purchase and use $5,000,000 of raw materials (mostly coffee beans) during the year.

      The expected costs for direct materials and direct labor for one-pound bags of two of the company’s coffee products appear belo

2. Using activity-based absorption costing as the basis for assigning manufacturing overhead cost to products, do the following:

a. Determine the total amount of manufacturing overhead cost assigned to the Kenya Dark coffee and to the Viet Select coffee for the year.

c. Determine the unit product cost of one pound of the Kenya Dark coffee and one pound of the Viet Select coffee. (Round intermediate calculations and final answers to 2 decimal places.)

Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells to gourmet shops in one-pound bags. The major cost of the coffee is raw materials. However, the company’s predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor.

Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells to gourmet shops in one-pound bags. The major cost of the coffee is raw materials. However, the company's predominantly automated roasting, blending, and packing processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labor Some of JSI's coffees are very popular and sell in large volumes, while a few of the newer blends sell in very low volumes. JSI prices its coffees at manufacturing cost plus a markup of 25%, with some adjustments made to keep the company's prices competitive For the coming year, JSI's budget includes estimated manufacturing overhead cost of $2,864,700. JSI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $564,000, which represents 47,000 hours of direct labor time. Based on the sales budget and expected raw materials costs, the company will purchase and use $5,000,000 of raw materials (mostly coffee beans) during the yean The expected costs for direct materials and direct labor for one-pound bags of two of the company's coffee products appear below Kenya Direct materials Direct labor (.035 hours per bag) Dark Viet Select 4.50 3.50 0.42 0.42 JSI's controller believes that the company's traditional costing system may be providing misleading cost information. To determine whether or not this is correct, the controller has prepared an analysis of the year's expected manufacturing overhead costs, as shown in the following table Expected Cost for the Expected Activity for the Year Activity Cost Pool Purchasing Material handling Quality control Roasting Blending Packaging Activity Measure Purchase orders Number of setups Number of batches Roasting hours Blending hours Packaging hours Year $ 525,000 698,100 140,000 962,000 334,000 205,600 1,750 orders 1,790 setups 560 batches 96,200 roasting hours 33,400 blending hours 25,700 packaging hours Total manufacturing overhead cost $2,864,700 Data regarding the expected production of Kenya Dark and Viet Select coffee are presented belovw Kenya Dark Viet Select 103,000 pounds 10,300 pounds 3,000 pounds 600 pounds Expected sales Batch size Setups Purchase order size Roasting time per 100 pounds Blending time per 100 pounds Packaging time per 100 pounds 3 per batch 3 per batch 600 pounds 1.5 roasting hours 0.5 blending hours 0.3 packaging hours 20,600 pounds 1.5 roasting hours 0.5 blending hours 0.3 packaging hours

Explanation / Answer

The question can be easily answered as follows. The two workings computed below will help us easily solve this question in quick time. In workings 2, we have mentioned by the side of the coputed figures as to they are calculated/relevant for which type of overhead cost.

Working 1: Calculation of ABC rate Overhead Cost Driver Units Amount Rate Purchasing   Purchase orders 1,750 5,25,000 300 Material handling   Number of setups 1,790 6,98,100 390   Quality control   Number of batches 560 1,40,000 250   Roasting   Roasting hours 96,200 9,62,000 10   Blending   Blending hours 33,400 3,34,000 10   Packaging   Packaging hours 25,700 2,05,600 8 28,64,700 Working 2: Workings required for computation of total overhead costs Kenya Dark Viet Select Type of overhead   Expected sales 1,03,000 pounds 3,000 pounds   Batch size 10,300 pounds 600 pounds No of Batch (Expected Sales/Batch Size) 10 5 Quality Control   Setups 3 per batch 3 per batch Total Setups (Batch size x Set ups per batch) 30 15 Material handling   Purchase order size 20,600 pounds 600 pounds Number of orders (Expected Sales/Purchase order size) 5 5 Purchasing   Roasting time per 100 pounds 1.5 roasting hours 1.5 roasting hours   Blending time per 100 pounds 0.5 blending hours 0.5 blending hours   Packaging time per 100 pounds 0.3 packaging hours 0.3 packaging hours Roasting hours required (Expected Sales/Roasting time per pound) 1545 45 Roasting Blending hours required (Expected Sales/Blending time per pound) 515 15 Blending Packaging hours required (Expected Sales/Packaging time per pound) 309 9 Packaging Answer to Question 2a. Kenya Dark Kenya Dark Viet Select Viet Select Comoutation of total amount of manufacturing overhead cost Units Amount Units Amount Purchasing Cost Purchase orders 300/order 5 1500 5 1500 Material handling Cost Number of setups 390/setup 30 11700 15 5850 Quality Control cost Number of batches 250/batch 10 2500 5 1250 Roasting Cost Roasting hours 10/hour 1545 15450 45 450 Blending cost Blending hours 10/hour 515 5150 15 150 Packaging cost Packaging hours 8/hour 309 2472 9 72 Total Overhead Cost 38772 9272 Answer to Question 2b. Kenya Dark Viet Select Number of pounds manufactured Pounds 103000 3000 Total overhead Cost $ 38772 9272 Manufacturing overhead cost per pound (Total overhead/No of pounds)                            0.38                                             3.09 Answer to Question 2c. Kenya Dark Viet Select Raw material cost/pound 4.5 3.5 Direct Labour cost/pound 0.42 0.42 Prime Cost/pound 4.92 3.92 Manufacturing overhead/pound                            0.38                                             3.09 Unit Production cost/pound                            5.30                                             7.01

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