What email address or phone number would you like to use to sign in to Docs.com?
If you already have an account that you use with Office or other Microsoft services, enter it here.
Or sign in with:
Signing in allows you to download and like content, and it provides the authors analytical data about your interactions with their content.
Embed code for: ACTG 4B Team Project 1 (1)
Select a size
Team Project #1 (20 points) Activity-Based Costing
Directions: Each team will be responsible for completing the case detailed below these instructions. This project should be done using Excel. Parts 1, 2, 2A, and 3 should be performed on separate spreadsheets in your Excel workbook. Part 3 should be an embedded Word document, since it is a memo. I will demonstrate how to embed a document and provide a brief description of what a memo should look like. Each team will submit the finished product via e-mail as an attachment. The project due date is noted on your class timeline. Note: The project is due via email by midnight on the due date. You need to use formulas and cell references whenever possible. If you do not use formulas or cell references, I will deduct points.
Part 1 of the assignment requires you to determine the cost of a unit of coffee (Mona Loa and Malaysian) using the traditional overhead allocation method. A unit of coffee is a one pound bag. The unit cost will include direct materials, direct labor, and manufacturing overhead (as determined using the predetermined overhead rate). You NEED to use Excel formulas whenever possible. Basically, the only time you will not use formulas is when you enter given information.
Part 2 of the assignment requires you to determine the cost of a unit of coffee (Mona Loa and Malaysian) using the activity-based costing method. As with the traditional method, you will need to show direct materials, direct labor and manufacturing overhead (as determined using ABC). Once again, use formulas wherever you can.
Part 2A is a comparison of both methods. Link the numbers to Parts 1 and 2 whenever possible. Show a side-by-side comparison of unit product costs calculated under each method (show the unit product cost of each type of coffee using both traditional and ABC costing). Unit product costs include direct materials, direct labor and manufacturing overhead costs on a per unit basis. Further, determine the changes in the profit margins for each bag of coffee under both methods (the sales price mark up % is given below). How much was the company losing per bag of the Malaysian coffee under the Traditional Method? Remember to use formulas.
Part 3 requires you to write a memo on your findings. The memo should be addressed to the president of Coffee Bean, Inc. The tone and format of the memo should be professional. Make recommendations based on your findings. Point out what caused differences between the two methods. Also, point out any potential problems you see with your recommendations (hint: see the part of the chapter on the limitations of ABC). The memo should be less than 300 words. Presidents don’t like to read long memos!
Activity-Based Costing as an Alternative to Traditional Product Costing
Coffee Bean, Inc. (CBI), 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. CBI currently has 40 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 process requires a substantial amount of manufacturing overhead. The company uses relatively little direct labor.
Some of CBI’s coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. CBI prices its coffee at manufacturing cost plus a markup of 30%. If CBI's prices for certain coffees are significantly higher than market, adjustments are made to bring CBI's prices more into alignment with the market because customers are somewhat price conscious.
For the coming year, CBI's budget includes estimated manufacturing overhead cost of $4,500,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 80,000 hours of direct labor time. Based on the sales budget and expected raw materials costs, the company will purchase and use $6,000,000 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 below.
Mona Loa Malaysian Direct materials $ 4.20 $ 3.20 Direct labor (0.05 hours per bag) $ 0.30 $ 0.30 (note that it takes 0.05 DLHs to make one bag of coffee – you’ll need this to apply MOH using the Traditional Method)
CBI'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: Activity Cost Pool Activity Measure Expected Activityfor the Year ExpectedCost for theYear Purchasing Purchase orders 3,000 orders $ 600,000 Material handling Number of setups 2,500 setups 1,120,000 Quality control Number of batches 1,000 batches 160,000 Roasting Roasting hours 120,000 roasting hours 1,200,000 Blending Blending hours 80,000 blending hours 1,000,000 Packaging Packaging hours 21,000 packaging hours 420,000 Total manufacturing overhead cost $ 4,500,000
Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. Mona Loa Malaysian Expected sales 70,000 pounds 1,500 pounds
Data regarding the expected activities used by Mona Loa and Malaysian coffees are presented below. Mona Loa Malaysian Batches 10 batches 4 batches Setups 30 setups 12 setups Purchase order size 5 orders 4 orders Roasting time per 100 pounds 700 hours 15 hours Blending time per 100 pounds 350 hours 7.5 hours Packaging time per 100 pounds 70 hours 1.5 hours
hanges in the profit margins for each bag of coffee under both methods (the sales price mark up % is given below). How much was the company losing per bag of the Malaysian coffee under the Traditional Method? Remember to use formulas.
For the coming year, CBI's budget includes estimated manufacturing overhead cost of $4,500,000. CBI assigns manufacturing overhead to products on the basis of direct labor-hours. The expected direct labor cost totals $600,000, which represents 80,000 hours of direct labor time. Based on the sales b