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 major cost is raw materials. There is also a substantial amount of manufacturing overhead in the predominantly automated roasting and packing processes. The company uses relatively little direct labor.
GGCC prices it’s coffee at full product cost, including allocated overhead, plus a markup of 30 percent. The company competes primarily on the quality of its products, but customers are price-conscious as well. Data for the 2018 budget include manufacturing overhead of $12,000,000, which is allocated based on each product’s direct labor cost. The budgeted direct labor cost for 2018 totals $1,200,000. Based on the sales budget and raw material budget, purchases and use of raw materials (coffee beans) will total $5,800,000. The expected prime costs for one-pound bags of two of the company’s products are as follows:
An analysis of the 2018 budgeted manufacturing overhead costs is shown in the following chart.
|Activity||Cost Driver||Budgeted Activity Level||Budgeted Cost|
Production Data for Jamaican and Columbian coffees in 2018 are as follows:
|Budgeted Sales||2,000 lb||100,000 lb|
|Batch Size||500 lb||20,000 lb|
|Setups||3 per batch||3 per batch|
|Purchase Order Size||500 lb||50,000 lb|
|Roasting Time||1 hr/200 lb||1 hr/200 lb|
|Blending Time||0.5 hr/200 lb||0.5 hr/200 lb|
|Packaging Time||0.1 hr/200 lb||0.1 hr/200 lb|
1. Using GGCC’s current product-costing system:
2. Develop a new product cost, using an activity-based costing approach, for one pound of Jamaican coffee and one pound of Colombian coffee.
3. Fully discuss the implications of the activity-based costing system with respect to: