Overall, this new costing system will help us become more efficient, more productive, make better strategic decisions and our products will became more competitive with the new representative pricing that will be based on the real cost and the real value they carry to the consumer.
Given that the direct material cost is the only different driver in value, and all other costs are found as a product of common rates with quantity, this result is expected. On the other hand, processing activities are associated with duration cost drivers where the time needed for the completion of each activity is of importance.
The solution is to make an accurate sales projection and unify the sales orders throughout the year in only one order that will cover the demand for the whole year. The product of the overhead rate along with the direct cost allocated to each coffee brand provide a figure of the indirect manufacturing overhead which can be allocated to each blend.
Moreover, there is a high probability that the sales of Malaysian, will drop dramatically because it will be too expensive for the quality it offers.
Based on the cost analysis under ABC system and the conclusions that were derived, the following recommendations are made: In contrast with traditional method, in ABC the expenses incurred to produce individual units of particular products Malaysian and Moana Loa coffee blends are separated from the expenses needed to produce these different products.
On the other hand, the third category of manufacturing overhead may not always be as accurate as it is applied based on a weighted average for the products. The effect the different activity costs provided per blend have on their budgeted costs is investigated in the following sections.
It is obvious that without accurate cost figures, management cannot make accurate observations and take actions regarding important issues.
The proper storing conditions will ensure the optimal preservation of the product. The calculation of all three categories is discussed in the following paragraphs. This result is seen with skepticism since the data provided for the different activities does differ with blend choice, and to assign manufacturing costs based on weighted averages of production is a simplistic way to go.
The reason for this cost and consequently price difference is the fundamental difference between the two costing systems which is the assumption in traditional costing that cost objects consume resources whereas in ABC it is assumed that cost objects consume activities. Budgeted cost and price of each blend Related posts: Each activity uses a specific cost allocation base.
Given the above inputs, the following direct costs are extracted: In addition, a prediction of production in pounds for each product is Recommendations The above conclusions make clear that some corrective strategic actions are absolutely necessary in order to re-launch our product mix in a more efficient way, offer value-for-money to our customers and take our business forward.
It is almost certain that more of the remaining 13 products of the company will be also over- or underpriced under the existing costing system.
Another aspect that we should look into is the origin of our raw materials and the location of our suppliers. We have to make better sales projections based on historical data of our sales and on market intelligence.
Higher direct material cost of Moana Loa, leads to higher price. Malaysian is underpriced and a loss is incurring with every unit sold. Thus, activities like purchasing, materials handling and quality control are linked with cost drivers known as transaction drivers where the number of times an activity occurs matters.
Activities are bonded with activity drivers. If we could group suppliers together based on their location, we could design a coordinated purchasing plan that would unify the orders and decrease a lot the transportation cost.
The contradicting results arising from the application of the two costing methods traditional and ABC are further analyzed.
Concerning the activities of roasting, blending and packaging, they have the same overhead cost per hour.
The first evident difference which arises from the application of the two aforementioned costing methods is the significant gap between the final cost figure of each method and consequently the big difference in the price of each blend.
Company data provided breakdown these costs for both coffee blends in question. The need for change in our pricing policy will bring about the need for other strategic changes as well.
We should conduct a Market Research in order to gather information of the consumer behavior regarding the coffee consumption and determine their willingness-to-pay for more premium products. The indirect costs are allocated in large quantities of the blend, resulting in a very good product raw seeds are more expensive than other varieties with a reasonable price.
That will strengthen our position in the market and empower the company to expand in other consumer goods market as well. Maybe, the reason that Malaysian does not sell much and has very low market share is that it is expensive in relation to its quality.
We shall plan our tactics towards our strategy taking into account other relevant information.Essays - largest database of quality sample essays and research papers on Coffee Bean Inc Costing Analysis.
The first method of costing used to evaluate the Coffee Bean products’ costs and profitability is the traditional costing method. This provides an initial base for comparison in order to assess the Malaysian and Moana Loa coffee blends against each other. 1 Pound of Mona Loa Coffee 1 Pound of Malaysian Coffee CBI's Current Costing & Price System Overview of Coffee Bean Inc.
CBI's Current Costing System Processes & distributes coffee Buys coffee globally; roasts, blends, packages for resale Analysis Activity Based Costing Activity Based Costing. Full transcript. 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. Coffee Bean. Coffee Bean, Inc. (CBI), is a processor and distributor of a variety of blends of coffee.
The company buys coffee beans from around the world and roasts, blends, and packages them for resale. Coffee Bean Inc. Costing Analysis Words | 14 Pages 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 .Download