CASE STUDY

Case study: Cafe Blend Limited

Case study: Cafe Blend Limited

Question 1

Solution (a)

Pre-determined Overhead Rate=??

=

=

=£ 60 per Direct Labour Hour

Solution (b)

Product Unit Cost of 1 kg of the Rona Loa coffee & 1 kg of the Colombian coffee =??

Product Unit Cost = Direct Material Cost + Direct Labour Cost + Manufacturing Over Head Cost

Rona Loa Coffee

Direct Material Cost

£ 4.20

Direct Labour Cost

£ 0.3

Manufacturing Over Head Cost ( £ 60 X 0.025)

£ 1.5

Total Product Cost

£ 6.00

Columbian Coffee

Direct Material Cost

£ 3.20

Direct Labour Cost

£ 0.30

Manufacturing Over Head Cost ( £ 60 X 0.025)

£ 1.50

Total Product Cost

£ 5.00

Question 2

Solution (a)

The Total amount of Manufacturing Overhead Cost assigned to the Rona Loa coffee and to the Colombian coffee for the year.

Name of the Activity

Expected Cost of the year

Total Expected Activity of the Year

Rate of Activity for the Year

Purchasing

£513,000.00

1,710 orders

£ 300 per Order

Material Handling

£720,000.00

1,800 setups

£ 400 per Set-up

Quality Control

£144,000.00

600 batches

£ 240 per Batch

Roasting

£961,000.00

96100 hours

£ 10 per Roasting Hour

Blending

£402,000.00

33,500 hours

£ 12 per Blending Hour

Packaging

£260,000.00

26,000 hours

£ 10 per Packaging Hour

For Rona Loa Coffee

Number of Orders

100,000 / 20,000

5

Number of Batches

100,000 / 10,000

10

Number of Set-ups

3 x 10

30

Roasting Hours

(1/100) x 100,000

1000

Blending Hours

(.5/100) x 100,000

500

Packaging Hours

(.1/100) x 100,000

100

 

 

Assignment of Activity Cost 

 

 

 

Purchasing

Purchasing Rate per Hour X Number of Orders

£ 300 x 5

£ 1,500

Materials Handling

Material Handling per Hour X Number of Set-ups

£ 400 x 30

£12,000

Quality control

Quality Control Rate per Hour X Number of Batches

£ 240 x 10

£ 2,400

Roasting

Roasting Hours Rate X Number of Roasting Hours

£ 10 x 1000

£ 10,000

Blending

Blending Hours Rate X Number of Blending Hours

£ 12 x 500

£ 5,000

Packaging

Packaging Hours Rate X  Number of Packaging Hours

£ 10 x 100

£ 1,000

Total Manufacturing Overhead

 

 

£ 31,900

For Columbian Coffee

Number of Orders

2,000 / 500

4

Number of Batches

2,000 / 500

4

Number of Set-ups

3 x 4

12

Roasting Hours

(1/100) x 2000

20

Blending Hours

(.5/100) x 2,000

10

Packaging Hours

(.1/100) x 1,000

2

Assignment of Activity Cost

Purchasing

Purchasing Rate per Hour X Number of Orders

£ 300 x 4

£ 1,200

Materials Handling

Material Handling per Hour X Number of Set-ups

£ 400 x 12

£ 4,800

Quality control

Quality Control Rate per Hour X Number of Batches

£ 240 x 4

£ 960

Roasting

Roasting Hours Rate X Number of Roasting Hours

£ 10 x 20

£ 200

Blending

Blending Hours Rate X Number of Blending Hours

£ 12 x 10

£ 120

Packaging

Packaging Hours Rate X  Number of Packaging Hours

£ 10 x 2

£ 20

Total Manufacturing Overhead

£ 7,300

Solution (b)

For Rona Loa Coffee

Total Manufacturing Overhead = £ 31,900

Total Number of Kilos Produced=100,000

Over Head per Kilo =£ 31, 900 / 100,000

=0.32

For Rona Loa Coffee

Total Manufacturing Overhead = £ 7,300

Total Number of Kilos Produced=2,000

Over Head per Kilo =£ 7,300 / 2,000

=3.65

Solution (c)

Rona Loa Coffee

Direct Material Cost

£ 4.20

Direct Labour Cost

£ 0.3

Manufacturing Over Head Cost ( £ 60 X 0.025)

£ 0.32

Total Product Cost

£ 4.82

Columbian Coffee

Direct Material Cost

£ 3.20

Direct Labour Cost

£ 0.30

Manufacturing Over Head Cost ( £ 60 X 0.025)

£ 3.65

Total Product Cost

£ 7.15

Question 3

Solution

Many companies use operation costing (ABCM) to focus on profitability and revenue growth. ABCM is the perfect way to pay for, budgeting and cost control is based on business drivers. It will improve profitability by helping the decision-making, promoting efficiency and enhance the coffee mixture ...