Cashback Offer from 20th to 31st January 2021. Get Flat 10% Cashback credited to your account for a minimum transaction of $80. Post Your Question Today!

Question DetailsNormal
$ 15.00

World Gourmet Coffee Company (WGCC) is a distributor and processor of

Question posted by
Online Tutor Profile
request

complete solution correct answer key

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 20x1 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 20x1 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 20x1 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 20x1 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.

 

Required:

1. Using WGCC’s current product-costing system:

a. Determine the company’s predetermined overhead rate using direct-labor cost as the single

cost driver.

b. Determine the full product costs and selling prices of one pound of Kona coffee and one

pound of Malaysian coffee.

2. Develop a new product cost, using an activity-based costing approach, for one pound of Kona

coffee and one pound of Malaysian coffee.

3. What are the implications of the activity-based costing system with respect to

a. The use of direct labor as a basis for applying overhead to products?

b. The use of the existing product-costing system as the basis for pricing?

 

 

Bo Vonderweidt, the production manager for Sportway Corporation, had requested to have lunch with

the company president. Vonderweidt wanted to put forward his suggestion to add a new product line. As

they finished lunch, Meg Thomas, the company president, said, “I’ll give your proposal some serious

thought, Bo. I think you’re right about the increasing demand for skateboards. What I’m not sure about

is whether the skateboard line will be better for us than our tackle boxes. Those have been our bread and

butter the past few years.”

Vonderweidt responded with, “Let me get together with one of the controller’s people. We’ll run a

few numbers on this skateboard idea that I think will demonstrate the line’s potential.”

Sportway is a wholesale distributor supplying a wide range of moderately priced sports equipment

to large chain stores. About 60 percent of Sportway’s products are purchased from other companies

while the remainder of the products are manufactured by Sportway. The company has a Plastics Department

that is currently manufacturing molded fishing tackle boxes. Sportway is able to manufacture and

sell 8,000 tackle boxes annually, making full use of its direct-labor capacity at available work stations.

The selling price and costs associated with Sportway’s tackle boxes are as follows:

Selling price per box .............................................................................................................................. $86.00

Costs per box:

Molded plastic ........................................................................................................................ $ 8.00

Hinges, latches, handle ........................................................................................................... 9.00

Direct labor ($15.00 per hour) ............................................................................................... 18.75

Manufacturing overhead ........................................................................................................ 12.50

Selling and administrative cost .............................................................................................. 17.00      65.25

Profit per box ......................................................................................................................................... $20.75

 

Because Sportway’s sales manager believes the firm could sell 12,000 tackle boxes if it had sufficient

manufacturing capacity, the company has looked into the possibility of purchasing the tackle boxes

for distribution. Maple Products, a steady supplier of quality products, would be able to provide up to

9,000 tackle boxes per year at a price of $68.00 per box delivered to Sportway’s facility.

Bo Vonderweidt, Sportway’s production manager, has come to the conclusion that the company

could make better use of its Plastics Department by manufacturing skateboards. Vonderweidt has a

market study that indicates an expanding market for skateboards and a need for additional suppliers.

Vonderweidt believes that Sportway could expect to sell 17,500 skateboards annually at a price of

$45.00 per skateboard.

After his lunch with the company president, Vonderweidt worked out the following estimates with

the assistant controller.

Selling price per skateboard ......................................................................................................................... $45.00

Costs per skateboard:

Molded plastic ........................................................................................................................... $5.50

Wheels, hardware ...................................................................................................................... 7.00

Direct labor ($15.00 per hour) .................................................................................................... 7.50

Manufacturing overhead ............................................................................................................. 5.00

Selling and administrative cost .................................................................................................... 9.00 ……34.00

Profit per skateboard .................................................................................................................................... $11.00

 

In the Plastics Department, Sportway uses direct-labor hours as the application base for manufacturing

overhead. Included in the manufacturing overhead for the current year is $50,000 of factorywide,

fixed manufacturing overhead that has been allocated to the Plastics Department. For each unit of product

that Sportway sells, regardless of whether the product has been purchased or is manufactured by

Sportway, there is an allocated $6.00 fixed overhead cost per unit for distribution that is included in the

selling and administrative cost for all products. Total selling and administrative costs for the purchased

tackle boxes would be $10.00 per unit.

 

Required:

In order to maximize the company’s profitability, prepare an analysis that will show which

product or products Sportway Corporation should manufacture or purchase.

1. First determine which of Sportway’s options makes the best use of its scarce resources. How

many skateboards and tackle boxes should be manufactured? How many tackle boxes should be

purchased?

2. Calculate the improvement in Sportway’s total contribution margin if it adopts the optimal strategy

rather than continuing with the status quo.

Available Answer
$ 15.00

[Solved] World Gourmet Coffee Company (WGCC) is a distributor and processor of

  • This solution is not purchased yet.
  • Submitted On 29 Jul, 2015 10:14:00
Answer posted by
Online Tutor Profile
solution
Solution – Make/Buy - Sportway Direct labor available = 8,000 tackle boxes x 1.25 hours* = 10,000 hours * $18.75 DL cost of a tackle box / $15.00 DL Wage Rate = 1.25 hour per tackle box Skateboards would require 17,500 / 2 = 8,750 hours Tackle Skate Boxes Board...
Buy now to view the complete solution
Other Similar Questions
User Profile
vpqnr...

World Gourmet Coffee Company (WGCC) is a distributor and processor of

Solution – Make/Buy - Sportway Direct labor available = 8,000 tackle boxes x 1.25 hours* = 10,000 hours * $18.75 DL cost of a tackle box / $15.00 DL Wage Rate = 1.25 hour per tackle box Skateboards would require 17,500...

The benefits of buying study notes from CourseMerit

homeworkhelptime
Assurance Of Timely Delivery
We value your patience, and to ensure you always receive your homework help within the promised time, our dedicated team of tutors begins their work as soon as the request arrives.
tutoring
Best Price In The Market
All the services that are available on our page cost only a nominal amount of money. In fact, the prices are lower than the industry standards. You can always expect value for money from us.
tutorsupport
Uninterrupted 24/7 Support
Our customer support wing remains online 24x7 to provide you seamless assistance. Also, when you post a query or a request here, you can expect an immediate response from our side.
closebutton

$ 629.35