French Press Coffee Inc. (HFC) processes and distributes avariety of coffees. HFC buys coffee beans from around the world androasts, blends, and packages them for resale. HFC sells one-poundbags of coffee throughout a series of gourmet shops. the companyhas low direct labor costs but very high factory overhead.
Data for the 2018 budget includes factory overhead of$2,393,500, which is currently being allocated based on directlabor cost. Budgeted direct labor is $100000.
The budgeted direct costs for a one pound bag of the two mostpopular coffee blends are as follows:
| Presque Isle Blend | Mentor Headlands blend |
Direct material | $4.25 | $3.50 |
| Direct labor cost | $0.95 | $0.75 |
The controller believed the current costing system generatesmisleading information. She has developed the followingdetails:
| Activity | Cost Driver | Budgeted Cost |
| Purchasing | #Purchase Orders | $474000 |
| Material Handling | #Setups | $638000 |
| Quality Control | #batches | $67500 |
| Roasting | Roasting Hours | $920000 |
| Blending | Blending Hours | $190000 |
| Packaging | Packaging Hours | $103000 |
Total Budgeted cost- $2,392,500
Additional information:
| Presque Isle Blend | Mentor Headlands Blend |
| Sales in units | $100000 pounds | 5000 pounds |
Selling price per unit | $30 | $24 |
| number of batches | 50 | 5 |
| Number of setups | 3 per batch | 3 per batch |
| purchase orders | 4 | 6 |
| roasting time | 1 hour per 100 pounds | 1 hour per 350 pounds |
| blending time | 0.50 hour per 100 pounds | 0.50 hour per 250 pounds |
| packaging time | 0.20 hour per 1000 pounds | 0.20 hour per 1000 pound |
Required: 1. Assuming manufacturing overhead is allocated basedon direct labor costs, calculate the cost per unit of Presque isleblend and mentor headlands blend.
2. Assuming the company uses Activity based costing, calculatethe cost per unit of Presque Isle Blend and Mentor HeadlandsBlend.
3. Calculate Gross Profit for each method of costing.
