Essay on Coffee Bean Inc. Costing Analysis

Words: 3374
Pages: 14

Executive Summary
This report analyses the costs associated with two of Coffee Beans Inc. products, Moana Loa and Malaysian blends based on two different costing methodologies, namely the traditional job costing system that the company uses so far and the Activity Based Costing (ABC).
ABC provides us with a more detailed and accurate estimation of the real cost of the products and it can serve as the basis for suitable strategic decisions, concerning products mix, pricing, suppliers and market positioning.
A major issue that have to be concerned is the discontinuation or not of Malaysian blend. Appropriate recommendations and alternative solutions are being provided in order to facilitate the strategic decision process and help the
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Concerning the activities of roasting, blending and packaging, they have the same overhead cost per hour. Hence, they all can be included in a pool of processing costs since they are homogeneous with a cost allocation base or hours of processing. (Table 4).
Activity Cost-Allocation Base Budgeted Activity Budgeted Cost
Roasting Roasting hours 96.100 $961.000
Blending Blending hours 33.600 $336.000
Blending Packaging hours 26.000 $260.000
Processing Beans Processing hours 155.700 $1.557.000

In order to proceed to ABC method, the cost allocation rate is needed. Using data in table 4 of the appendix the following results arise.
Purchasing Cost Allocation Rate =$579.000 Budg. Cost / 1.158 Budg. Activity= $500
Material handling Allocation Rate =
$720.000 Budg. Cost / 1.800 Budg. Activity= $400
Quality control Allocation Rate =$144.000 Budg. Cost / 600 Budg. Activity= $240
Roasting Allocation Rate =$961.000 Budg. Cost / 96.100 Budg. Activity= $10
Blending Allocation Rate =$336.000 Budg. Cost / 33.600 Budg. Activity= $10
Packaging Allocation Rate =$260.000 Budg. Cost / 26.000 Budg. Activity= $10

In addition to the cost allocation rate, the rate per unit of each cost allocation base used to allocate indirect costs (activities) to the products is required.