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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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.?](https://content.bartleby.com/qna-images/question/8e89ef0a-33d1-4265-a2d3-59ecd3a68079/f4edb63c-0d11-4e68-a568-d8b1ac07d707/d1pb26f_thumbnail.jpeg)
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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