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Coffee Bean Essay

940 words - 4 pages

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 predominately 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 ...view middle of the document...

20 |
|$ 3.20 |
| |
|Direct labor |
|0.30 |
|0.30 |
| |

 
 CBI’s controller believes that the company’s traditional costing system may be providing misleding 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 Activity for the Year |
|Expected Cost for the Year |
| |
|Purchasing |
|Purchase orders |
|1,710 orders |
|$513,000 |
| |
|Materials handling |
|# of Setups |
|1,800 setups |
|720,000 |
| ...

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