HOMEWORK PROBLEM 6-1
High Mountain Coffee Co. is a processor and distributor of
different blends of quality coffee. The company buys beans from around the
world and roasts, blends and packages them for resale. There are presently 15
different flavors which are sold to gourmet shops in one pound bags. The major
cost is raw materials; however, there is substantial amount of manufacturing
overhead in the product. This relates to the high level of automation in the
roasting and packing. The company uses very little direct labor.
Some of the
flavors are very popular and sell in large volumes while a few newer blends
have very low volumes. High Mountain prices its coffee at full product cost
including allocated overhead plus a markup of 30%. High Mountain competes with
comparable qualities but customers are cost conscience.
Data for the
2011 budget includes manufacturing overhead of $3,000,000; direct labor of
$600,000, and raw materials of $6,000,000. Total plant production is estimated
to be 3,000,000 pounds of coffee.
prime costs for one pound bags of the two following products are as follows:
Mountain has also developed the following budgeted manufacturing overhead
information for 2011.
TOTAL MFG OVERHEAD
Data regarding the 2011 production of Kayaker’s and Brundage
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.
1 LB PER
1 LB PER
1. Calculate the overhead
allocation rate for each blend using direct labor dollars as the driver.
2. Calculate the overhead
allocation rate for each blend assuming number of pounds is the driver.
3. Calculate the overhead allocation