Java Coffee Company Produces Special Types of Blended Coffee Expected Production for 2010 Is 100,000 Pounds of Regular,40,000 Pounds

question 106

Essay

Java Coffee Company produces special types of blended coffee.Its products are used in exclusive restaurants throughout the world,and quality is the primary objective of the company.A team of quality consultants is employed to continually assess the quality of the coffee beans purchased and the blending procedures and ingredients used.The company's controller is in the process of determining the prices to be used during the coming year.Three blends are currently produced: Regular,Mocha,and Choco.Total anticipated costs per blend are shown below for 2010:
$\begin{array}{c}\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Total Cost }\\\begin{array}{lrrr}&\text { Regular } & \text { Mocha } &\text { Choco }\\\hline\text { Direct materials } & \$ 65,600 & \$ 51,800 & \$ 26,600 \\\text { Direct labor } & 96,200 & 29,800 & 29,800 \\\text { Variable overhead } & 75,400 & 38,900 & 38,900 \\\text { Fixed overhead } & 82,400 & 49,800 & 49,800 \\\text { Total selling general, and } & & & \\\quad \text { administrative expenses } & 50,400 & 49,700 & 39,900 \\\text { Desired profit } & 29,500 & 21,700 & 25,395\end{array}\end{array}$
Expected production for 2010 is 100,000 pounds of Regular,40,000 pounds of Mocha,and 25,000 pounds of Choco.Round answers to nearest two decimal places.
a. Compute the selling price for each blend using the gross margin pricing method.
b. If the competition's selling price for the Choco blend averaged $10.10 per pound, would this influence the controller's pricing decision? State your reasons.

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