Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 43

Cost of Capacity (Continuation of 5-61) Use the same information as above for Coffee Bean, Inc. (CBI) except assume now that Mona Loa and Malaysian are the only two products at CBI. Also, now include the following additional information about the practical capacity Coffee Bean has in each of its activities. For example, currently Coffee Bean has total practical capacity for processing 1,400 purchase orders, 2,400 setups, etc. These are the levels of activity work that are sustainable.
Required
1. Determine the activity rates based on practical capacity and the cost of unused capacity for each activity.
2. Explain the strategic role of the information you have developed in part (1) above.
3. Assume the same information used in parts (1) and (2) above, but now assume also that the costs in the purchasing activity consists entirely of the cost of 8 employees; the cost in materials handling consists entirely of the cost of 20 employees; the cost of quality control consists entirely of the cost of 4 employees; the cost of roasting and blending consists entirely of the costs of machines-10 roasting machines and 10 blending machines; and the cost of packaging consists entirely of the cost of 3 employees. Based on this additional information, what can you now advise management about the utilization of capacity