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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	$	42,000		175	orders
Setting up production	Number of production runs		187,000		110	runs
Handling materials	Pounds of materials used		300,000		120,000	pounds
Machine depreciation and maintenance	Machine-hours		216,000		12,000	hours
Performing quality control	Number of inspections		73,150		55	inspections
Packing	Number of units		127,500		510,000	units
Total estimated cost		$	945,650

In addition, management estimated 7,400 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		59,000			28,000			9,000
Direct materials costs	$	39,000		$	23,000		$	13,000
Direct labor-hours		410			480			620
Number of orders		12			10			5
Number of production runs		3			4			5
Pounds of material		13,000			5,000			3,000
Machine-hours		610			150			80
Number of inspections		2			3			4
Units shipped		59,000			28,000			9,000

Actual labor costs were $16 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.)

Activity Rate

Processing Orders	???	Per Order
Setting up production	???	Per Run
Handling materials	???	Per pound
Using machines	???	per machine hour
Performing quality control	???	per inspection
Packing	???	per unit

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

Predetermined rate per direct labor hour: ????

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.)

Account	Institutional	Standard	Silver	Total
Direct Materials	$39,000	$23,000	$13,000	$75,000
Direct Labor
Indirect Cost
Total Cost

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.)

Account	Institutional	Standard	Silver	Total
Direct Material	$39,000	$23,000	$13.000	$75,000
Direct Labor
Indirect Costs
Processing Orders
Setting up production
Handling materials
Using machines
Performing quality control
Packing
Total Cost

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