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Presentation/PPT
27/08/2022
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 20×1 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 20×1 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 20×1 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 20×1 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.
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