Coffee Bean Inc.

Management Accounting

Coffee Bean Inc.

Table of Contents

1 Executive Summary 2

2 Calculation of costs using the existing costing system 3

2.1 Manufacturing Overhead Rate 3

2.2 Cost allocations per unit and suggested selling prices 3

3 Defining an alternative activity-based approach 3

3.1 Calculation of budgeted costs 3

4 Comparison of results and initial analysis 3

5 Implications on pricing and product-emphasis strategy 3

6 An agent of change in the decision-making process of the company 3

6.1 Pricing & Product Mix 3

6.2 Cost production & Process improvement 3

6.3 Planning & Control 3

7 Next steps towards a more comprehensive analysis 3

7.1 Find the cause of the low volume on the Malaysian variety 3

7.2 Take preventive action in case of niche market 3

7.3 Better control on the procedure in case of early product life cycle 3

7.4 Decide on the new price of the Moana Loa 3

8 Conclusion 3

Executive Summary

This report takes a closer insight in the costing system of Coffee Beam Inc. and the calculation of product costs, pricing and profitability. Based on the existing system, the manufacturing overhead costs are allocated on the basis of each product’s budgeted direct-labour cost. Taking under consideration the fact that Coffee Beam Inc. is not a labour intensive company, with a high level of indirect manufacturing costs, a new, activity based approached, is presented that reveals major differences on costs allocated to each product.

More specifically, an analysis on two distinctive blends was conducted, the high-volume Moana Loa blend and the low-volume Malaysian blend, including the comparison on costs allocated based on the two different costing systems, existing and activity based. This analysis has revealed that the Moana Loa blend was overcosted when the Malaysian one was undercosted, due to the fact that the current system uses the direct labour cost as a rate to allocate the various manufacturing...