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Reaner Coffee Beans Inc. produces two coffee bean products: "Specialty" and "House." The "House" product is sold to a few major vendors in bulk. The "Specialty" product is sold direct to individual consumers. The "Specialty" product includes a designer box in which the beans are hand packed into a red velvet drawstring bag, A leaflet with dessert recipes is also included. The "House" product simply packages the beans into a basic coffee bag Renner leo, currently uses a plant-wide rate to allocate overhead costs based on direct labor hours. Overhead is estimated to be $460,000 for the year, while direct labor hours are estimated to be 80,000 hour. The "Specialty" product requires $5 in direct materials per unit and I direct labor A total of 20,000 units of the "Specialty" product were manufactured during the year. The "House" product requires $1.50 in direct materials per unit and .5 direct labor hours. 120,000 units of the "House" product were produced during the year. The direct labor rate is $10 per hour. Renner Inc. is considering switching to an activity-based costing system to apply overhead costs to its products. Three activity pools have been identified as follow Cost Driver of orders of packing hours direct labor hrs Activity Center Ordering Packing General Factory Required (a) (b) (c) (d) Trac Cora $100,000 60,000 300,000 Annual Tracoactions Total 1000 Specialty 700 4000 3750 80000 20000 Home 300 250 60000 Compute the plant-wide overhead rate and apply overhead to each product. Compute the overhead rate for each activity center. Assume ABC is used, compute the amount of overhead cost that should be applied to the "Specialty" and "House" products. Compute the total unit cost of the "Specialty" and "House" using

Reaner Coffee Beans Inc. produces two coffee bean products: "Specialty" and "House." The "House" product is sold to a few major vendors in bulk. The "Specialty" product is sold direct to individual consumers. The "Specialty" product includes a designer box in which the beans are hand packed into a red velvet drawstring bag, A leaflet with dessert recipes is also included. The "House" product simply packages the beans into a basic coffee bag Renner leo, currently uses a plant-wide rate to allocate overhead costs based on direct labor hours. Overhead is estimated to be $460,000 for the year, while direct labor hours are estimated to be 80,000 hour. The "Specialty" product requires $5 in direct materials per unit and I direct labor A total of 20,000 units of the "Specialty" product were manufactured during the year. The "House" product requires $1.50 in direct materials per unit and .5 direct labor hours. 120,000 units of the "House" product were produced during the year. The direct labor rate is $10 per hour. Renner Inc. is considering switching to an activity-based costing system to apply overhead costs to its products. Three activity pools have been identified as follow Cost Driver of orders of packing hours direct labor hrs Activity Center Ordering Packing General Factory Required (a) (b) (c) (d) Trac Cora $100,000 60,000 300,000 Annual Tracoactions Total 1000 Specialty 700 4000 3750 80000 20000 Home 300 250 60000 Compute the plant-wide overhead rate and apply overhead to each product. Compute the overhead rate for each activity center. Assume ABC is used, compute the amount of overhead cost that should be applied to the "Specialty" and "House" products. Compute the total unit cost of the "Specialty" and "House" using

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Renner Coffee Beans Inc. produces two coffee bean products: "Specialty" and "House." The "House" product is sold to a few major vendors in bulk. The "Specialty product is sold direct to individual consumers. The "Specialty" product includes a designer box in which the beans are hand packed into a red velvet drawstring bag, A leaflet with dessert recipes is also included. The "House" product simply packages the beans into a basic coffee bag. Renner lec, currently uses a plant-wide rate to allocate overhead costs based on direct labor hours, Overhead is estimated to be $460,000 for the year, while direct labor hours are estimated to be 80,000, The Specialty" product requires $5 in direct materials per unit and I direct labor hour. A total of 20,000 units of the "Specialty" product were manufactured during the year. The "House" product requires $1.50 in direct materials per unit and .5 direct labor hours. 120,000 units of the "House" product were produced during the year. The direct labor rate is $10 per hour. Renner Inc. is considering switching to an activity-based costing system to apply overhead costs to its products. Three activity pools have been identified as follow. Activity Center Cost Driver of orders of packing hours direct labores Ordering Packing General Factory Required: (a) (b) (c) (d) (c) Traceable Conta $100,000 60,000 300,000 Total 1000 4000 80000 Annual Tramoactions Specialty 700 3750 20000 Home 300 250 60000 Compute the plant-wide overhead rate and apply overhead to each product. Compute the overhead rate for each activity center. Assume ABC is used, compute the amount of overhead cost that should be applied to the "Specialty" and "House" products. Compute the total unit cost of the "Specialty" and "House" products using ABC. Compare to the total unit cost if traditional methods are employed. Comment on what is driving the cost differences between the two methods. la ABC necessary at Renner Coffee Beans Inc.?
Transcribed Image Text:Renner Coffee Beans Inc. produces two coffee bean products: "Specialty" and "House." The "House" product is sold to a few major vendors in bulk. The "Specialty product is sold direct to individual consumers. The "Specialty" product includes a designer box in which the beans are hand packed into a red velvet drawstring bag, A leaflet with dessert recipes is also included. The "House" product simply packages the beans into a basic coffee bag. Renner lec, currently uses a plant-wide rate to allocate overhead costs based on direct labor hours, Overhead is estimated to be $460,000 for the year, while direct labor hours are estimated to be 80,000, The Specialty" product requires $5 in direct materials per unit and I direct labor hour. A total of 20,000 units of the "Specialty" product were manufactured during the year. The "House" product requires $1.50 in direct materials per unit and .5 direct labor hours. 120,000 units of the "House" product were produced during the year. The direct labor rate is $10 per hour. Renner Inc. is considering switching to an activity-based costing system to apply overhead costs to its products. Three activity pools have been identified as follow. Activity Center Cost Driver of orders of packing hours direct labores Ordering Packing General Factory Required: (a) (b) (c) (d) (c) Traceable Conta $100,000 60,000 300,000 Total 1000 4000 80000 Annual Tramoactions Specialty 700 3750 20000 Home 300 250 60000 Compute the plant-wide overhead rate and apply overhead to each product. Compute the overhead rate for each activity center. Assume ABC is used, compute the amount of overhead cost that should be applied to the "Specialty" and "House" products. Compute the total unit cost of the "Specialty" and "House" products using ABC. Compare to the total unit cost if traditional methods are employed. Comment on what is driving the cost differences between the two methods. la ABC necessary at Renner Coffee Beans Inc.?
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