Module: STX 4114 Quantitative Analysis for Managers Academic Year: 2010/2011 Coursework assignment: An individual project which

h consists of a written report.

Case study: Coffee Bean Limited (Adapted from Seal et al, 2009 online resources) Coffee Been Limited (CBL) 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. CBL currently has 40 different coffees that it sells to gourmet shops in one-kilo bags. The major cost of the coffee is raw materials. However, the companys predominantly automated roasting, blending, and packing process requires a substantial amount of manufacturing overhead. The company uses relatively little direct labour. Some of CBLs coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. CBL prices its coffee at manufacturing cost plus a mark-up of 30%. If CBLs prices for certain coffees are significantly higher than market, adjustments are made to bring CBLs prices more into alignment with the market since customers are somewhat price conscious. For the coming year, CBLs budget includes estimated manufacturing overhead cost of 3,000,000. CBL assigns manufacturing overhead to products on the basis of direct labour hours. The expected direct labour cost totals 600,000, which represents 50,000 hours of direct labour time. The expected costs for direct materials and direct labour for one-kilo bags of two of the companys coffee products appear below. Mona Loa 4.20 0.30 Malaysian 3.20 0.30

Direct materials Direct labour (0.025 hours per bag)

CBLs new marketing manager believes that the companys traditional costing system may be providing misleading cost information. To determine whether or not this is correct, the marketing manager has obtained an analysis of the years expected manufacturing overhead costs, as shown in the following table: Activity Cost Pool Activity Measure Expected Activity for the Expected Cost Year for the year

Purchasing Material handling Quality control Roasting Blending Packaging Total manufacturing overhead cost

Purchase orders Number of setups Number of batches Roasting hours Blending hours Packaging hours

1,710 orders 1,800 set ups 600 batches 96,100 roasting hours 33,500 blending hours 26,000 packaging hours

513,000 720,000 144,000 961,000 402,000 260,000 -------------3,000,000 ========

Data regarding the expected production of Mona Loa and Malaysian coffee are presented below. Mona Loa 100,000 kilos 10,000 kilos 3 per batch 20,000 kilos 1.0 hour 0.5 hour 0.1 hour Malaysian 2,000 kilos 500 kilos 3 per batch 500 kilos 1.0 hour 0.5 hour 0.1 hour

Expected sales Batch size Setups Purchase order size Roasting time per 100 kilos Blending time per 100 kilos Packaging time per 100 kilos

As the newly appointed marketing manager, produce a report to the board detailing the following: 1. Using direct labour hours as the base for assigning manufacturing overhead cost to products: a) Determine the predetermined overhead rate that will be used during the year. b) Determine the unit product cost of one kilo of the Mona Loa coffee and one kilo of the Malaysian coffee. [5 marks] 2. Using activity based costing as the basis for assigning manufacturing overhead cost to products, do the following: a) Determine the total amount of manufacturing overhead cost assigned to the Mona Loa coffee and to the Malaysian coffee for the year. b) Using the data developed in (2a) above, compute the amount of manufacturing overhead cost per kilo of the Mona Loa coffee and the Malaysian coffee. Round all computations to the nearest two decimals. c) Determine the unit product cost of one kilo of the Mona Loa coffee and one kilo of the Malaysian coffee. [20 marks]

3. Explain to the board of CBL what you have found in (1) and (2) above and discuss the implications to the company of using direct labour as the base for assigning manufacturing overhead cost to products. [20 marks] 4. The marketing manager commissions a study into the impact of a new advertising campaign on the sales of their Malaysian coffee. Sales are taken from 25 different outlets before the campaign begins and from the same outlets after 10 weeks into the campaign. The data is contained in the file COFFEESALES.SAV available on OASISPlus. Does there seem to be a significant increase in sales after the campaign. State precisely the hypotheses you are testing and any assumptions you make. What other considerations should you take into account when conducting this research? Include your analysis in the report to the board of CBL in part 3. [15 marks] 5. By measuring the resources consumed by products (and other cost objects) an ABC system provides a much better basis for decision making than a traditional cost accounting system that spreads overhead costs around without much regard for what might be causing the overhead. A well designed ABC system provides managers with estimates of potentially relevant costs that can be a very useful starting point for management analysis. Discuss this statement with regard to Coffee Bean Limited and other relevant academic literature. [40 marks]

Instructions:
The written report should be around 2000 words or about 5-6 A4 sides. The report must be word-processed and should be handed in to the Student Office by 4pm on Tuesday 26th April 2011. You must include a front sheet which details your name and student number and the word count. Assessment: This coursework consists of 30% of the overall module grade.
The assessment criteria for the report will include the following: 1. Originality of the project 2. Depth of research whether the project consists of simply internet searches etc. or involves a more thorough research. 3. Layout and clarity whether the report is logically set out with a beginning, middle and a conclusion. 4. Use of appropriate knowledge whether or not the reports arguments are backed up with appropriate analysis and evidence 5. The use of computer packages the group should, where appropriate, provide original charts and analysis done with the use of computer packages 6. Referencing referencing should be clear and bibliography detailed. The common referencing standard is to state the surname(s) of the author and the date of the publication in the text, e.g. (Jones 2010) with the reference in the bibliography: Jones, Matthew, Module Handbook: STX4114, 2010 Middlesex University Press Should you have any queries about the assessment then please do not hesitate to contact the module tutors.

Plagiarism
Please note very carefully that any form of plagiarism will immediately result in a failing grade U for all parties involved. This includes sharing word-processed paragraphs with other students. If the essay is found to have been lifted from another essay or assignment from any source, the whole module will be given a U grade for the student involved. This also includes the purchasing of essays from online sources. _____________________________________