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Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional, standard, and silver. It applies all indirect costs according to a predetermined rate based on direct labor-hours. A consultant recently suggested that the company switch to an activity-based costing system and prepared the following cost estimates for year 2 for the recommended cost drivers.

Activity	Recommended Cost Driver	Estimated Cost			Estimated Cost Driver Activity
Processing orders	Number of orders	$	54,000		200	orders
Setting up production	Number of production runs		216,000		100	runs
Handling materials	Pounds of materials used		360,000		120,000	pounds
Machine depreciation and maintenance	Machine-hours		288,000		12,000	hours
Performing quality control	Number of inspections		72,000		45	inspections
Packing	Number of units		144,000		480,000	units
Total estimated cost		$	1,134,000

In addition, management estimated 7,500 direct labor-hours for year 2.

Assume that the following cost driver volumes occurred in January year 2:

	Institutional			Standard			Silver
Number of units produced		60,000			24,000			9,000
Direct materials costs	$	39,000		$	24,000		$	15,000
Direct labor-hours		450			450			600
Number of orders		12			9			6
Number of production runs		3			3			6
Pounds of material		15,000			6,000			3,000
Machine-hours		580			140			80
Number of inspections		3			3			3
Units shipped		60,000			24,000			9,000

Actual labor costs were $15 per hour.

Required:

(a)

(1)	Compute a predetermined overhead rate for year 2 for each cost driver using the estimated costs and estimated cost driver units prepared by the consultant. (Round your answers to 2 decimal places.)

(2)	Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. (Round your answer to 2 decimal places.)

(b)	Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a)(2). (Do not round intermediate calculations.)

(c)

Compute the production costs for each product for January using the cost drivers recommended by the consultant and the predetermined rates computed in requirement (a). ( Note: Do not assume that total overhead applied to products in January will be the same for activity-based costing as it was for the labor-hour-based allocation.) (Do not round intermediate calculations.)

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