The Global Gourmet Coffee Company (GGCC) is a distributor and processor of different blends of coffee. GCC currently has 12 different coffees that it offers to gourmet shops in one-pound bags. The maj

a. The company's predetermined overhead rate using direct-labor cost as the single cost driver is calculated as follows: Predetermined overhead rate = Budgeted manufacturing overhead / Budgeted direct labor cost Predetermined overhead rate = $12,000,000 / $1,200,000 Predetermined overhead rate = $10 per direct labor dollar b. The full product costs and selling prices of one pound of Jamaican coffee and one pound of Colombian coffee are calculated as follows: Jamaican coffee: Direct material cost = $2.90 Direct labor cost = $0.40 Manufacturing overhead cost = ($0.40 x $10) = $4.00 Total cost per pound = $7.30 Markup (30%) = $2.19 Selling price per pound = $9.49 Colombian coffee: Direct material cost = $3.90 Direct labor cost = $0.40 Manufacturing overhead cost = ($0.40 x $10) = $4.00 Total cost per pound = $8.30 Markup (30%) = $2.49 Selling price per pound = $10.79 2. The new product cost using an activity-based costing approach for one pound of Jamaican coffee and one pound of Colombian coffee is calculated as follows: Jamaican coffee: Direct material cost = $2.90 Direct labor cost = $0.40 Manufacturing overhead cost = (3 setups x $960 per setup) + (500 roasting hours x $20 per roasting hour) + (500 blending hours x $10 per blending hour) + (500 packaging hours x $5 per packaging hour) = $23,500 Total cost per pound = $26.80 Markup (30%) = $8.04 Selling price per pound = $34.84 Colombian coffee: Direct material cost = $3.90 Direct labor cost = $0.40 Manufacturing overhead cost = (3 setups x $960 per setup) + (50,000 lb / 20,000 lb per batch x 1.5 batches x $576 per batch) + (100,000 roasting hours x $20 per roasting hour) + (100,000 blending hours x $10 per blending hour) + (100,000 packaging hours x $5 per packaging hour) = $2,814,800 Total cost per pound = $14.07 Markup (30%) = $4.22 Selling price per pound = $18.29 3. The activity-based costing system has several implications: a. The use of direct labor as the sole basis for applying overhead to products may not accurately reflect the actual consumption of manufacturing overhead by each product. This is because products with different levels of complexity, batch sizes, and activity requirements may consume different amounts of manufacturing overhead even if they have the same amount of direct labor cost. b. The use of the existing product-costing system as the basis for pricing may not be optimal since it does not take into account the actual consumption of manufacturing overhead by each product. This may lead to overpricing or underpricing certain products, which can affect the company's profitability and competitiveness. Using activity-based costing can provide more accurate product costs and pricing decisions, which can improve the company's competitiveness in the market.