Like any organizations, farmers faced a lot of challenges in the 21st century. Fiji TV’sTalk Business features the coffee farmers from the highlands of Guadalcanal and howthis partnership has resulted in the export of high quality coffee beans out of the SolomonIslands.Watch their story entitled “COFFEE INDUSTRY- SOLOMON ISLANDS- YouTube” onwww.youtube.com/watch?v=NY9y96ynEVgVarivao Holdings is a local company in the Solomon Islands that buys Arabian coffeebeans from the farmers and then processed it before selling it to the local market.Recently, the coffee business is a great success and there are interests from overseascountries for this coffee. However, at the moment the coffee is sold to the local market ina one-kilogram package labeled as ‘Solomon Gold’. The two most popular roasts aremedium roast and dark roast. These blends of coffee are so popular in the gourmet coffeeshops in Honiara.Since the processing of the coffee beans is highly automated, a large portion of the cost ismanufacturing overhead costs. With regards to its direct costs, the major cost is the costof the coffee beans (direct materials), while direct labor costs is minimal. Themanagement accountant of Varivao prices its coffee using a cost-plus pricing strategy byadding 30 percent to the total manufacturing cost.Data for 2015 include budgeted manufacturing overhead cost of $1,500,000, which iscurrently allocated using the direct labor cost. The budgeted direct labor cost for 2015 is$300,000. Purchase of coffee beans from farmers is expected to be $3,000,000. Thebudgeted direct costs for a 1 kg coffee packet is as follows:Costs Solomon GoldMedium RoastSolomon Gold DarkRoastCoffee beans (raw materials) $5.20 $4.20Direct labor $0.40 $0.40Varivao’s management accountant has recently attended a public seminar on activitybasedcosting system and believes that their conventional costing system may beproviding misleading costing information. Therefore, she has analyzed the 2015 budgetedmanufacturing overhead costs as follows:23Activity Cost driver BudgetedActivityBudgetedCostPurchasing Purchase orders 579 $289,500Materials handling Number of setups 900 360,000Quality control Number of batches 300 72,000Roasting Roasting hours 48,050 480,500Blending Blending hours 16,800 168,000Packaging Packaging hours 13,000 130,000Total manufacturing overhead cost $1,500,000Production data for 2015 for the two popular coffee roasts are as follows:Costs Solomon GoldMedium RoastSolomon Gold DarkRoastExpected sales 50,000 kg 1,000 kgBatch size 5,000 kg 250 kgSetups 2 per batch 2 per batchPurchase order size 12,500 kg 250 kgRoasting time 0.5 hour per 50kg 0.5 hour per 50 kgBlending time 0.25hr. per 50 kg 0.25 hr. per 50 kgPackaging time 0.05 hr. per 50 kg 0.05 hr. per 50 kg.Required(1) Describe the changes in the business environment of the coffee industry in theSolomon Islands. (4 marks)(2) Explain TWO factors that might have an effect on the customer value andshareholder value. (3 marks)(3) Using Varivao’s current conventional costing system,(i) Determine its pre-determined overhead rate (make sure you label the ratecorrectly). (2 marks)(ii) Determine the budgeted costs and selling prices of 1 kg packet of theSolomon Gold medium roast, and Solomon Gold dark roast.(6 marks