Coffee Bean Inc. Costing Analysis
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 Costing (ABC).
ABC provides us with a more detailed and accurate estimation of the real cost of the products and it can serve as the basis for suitable strategic decisions, concerning products mix, pricing, suppliers and market positioning.
A major issue that have to be concerned is the discontinuation or not of Malaysian blend. Appropriate recommendations and alternative solutions are being provided in order to facilitate the strategic decision process and help the Board of Directors to go to the right direction that will optimize our product mix, strengthen our position in the market and boost our operating profit.
TABLE OF CONTENTS
1. Introduction 1
2. Traditional Costing method 2
3. Activity Based Costing (ABC) 3
4. Comparison Between the Results of Traditional Costing and Activity Based Costing for Coffee Bean Inc. 5
5. Conclusions 6
6. Recommendations 7
7. Appendix 9
1. Introduction
Traditionally, companies used costing based solely on direct labor or machine hours in order to allocate indirect costs to products. A more recent approach is the Activity Based Costing (ABC) that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.
The present report will investigate the costs structure of two products of Coffee Bean Inc., Moana Loa and Malaysian. Initially, the so far applied traditional method will be presented. Then, the refined costing system of Activity Based Costing will be examined. Following there will be a comparison of the two methods with an effort to locate points that will reveal inconsistencies in costing and subsequent
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 detailed and accurate estimation of the real cost of the products and it can serve as the basis for suitable strategic decisions, concerning products mix, pricing, suppliers and market positioning.
A major issue that have to be concerned is the discontinuation or not of Malaysian blend. Appropriate recommendations and alternative solutions are being provided in order to facilitate the strategic decision process and help the Board of Directors to go to the right direction that will optimize our product mix, strengthen our position in the market and boost our operating profit.
TABLE OF CONTENTS
1. Introduction 1
2. Traditional Costing method 2
3. Activity Based Costing (ABC) 3
4. Comparison Between the Results of Traditional Costing and Activity Based Costing for Coffee Bean Inc. 5
5. Conclusions 6
6. Recommendations 7
7. Appendix 9
1. Introduction
Traditionally, companies used costing based solely on direct labor or machine hours in order to allocate indirect costs to products. A more recent approach is the Activity Based Costing (ABC) that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.
The present report will investigate the costs structure of two products of Coffee Bean Inc., Moana Loa and Malaysian. Initially, the so far applied traditional method will be presented. Then, the refined costing system of Activity Based Costing will be examined. Following there will be a comparison of the two methods with an effort to locate points that will reveal inconsistencies in costing and subsequent