Kitchen Supply, Inc. (KSI), manufactures three types offlatware: institutional, standard, and silver. It applies allindirect costs according to a predetermined rate based on directlabor-hours. A consultant recently suggested that the companyswitch to an activity-based costing system and prepared thefollowing cost estimates for year 2 for the recommended costdrivers.
| Activity | Recommended
Cost Driver | Estimated
Cost | Estimated Cost
Driver Activity |
| Processing orders | Number of orders | $ | 36,750 | | 175 | orders | |
| Setting up production | Number of production runs | | 180,000 | | 100 | runs | |
| Handling materials | Pounds of materials used | | 260,000 | | 130,000 | pounds | |
| Machine depreciation and maintenance | Machine-hours | | 286,000 | | 13,000 | hours | |
| Performing quality control | Number of inspections | | 52,000 | | 40 | inspections | |
| Packing | Number of units | | 122,500 | | 490,000 | units | |
| Total estimated cost | | $ | 937,250 | | | | |
|
In addition, management estimated 7,400 direct labor-hours foryear 2.
Assume that the following cost driver volumes occurred inJanuary, year 2:
| Institutional | Standard | Silver |
| Number of units produced | | 62,000 | | | 23,000 | | | 11,000 | |
| Direct materials costs | $ | 36,000 | | $ | 27,000 | | $ | 12,000 | |
| Direct labor-hours | | 460 | | | 470 | | | 560 | |
| Number of orders | | 12 | | | 9 | | | 7 | |
| Number of production runs | | 4 | | | 3 | | | 6 | |
| Pounds of material | | 13,000 | | | 5,000 | | | 2,900 | |
| Machine-hours | | 590 | | | 160 | | | 90 | |
| Number of inspections | | 3 | | | 2 | | | 3 | |
| Units shipped | | 62,000 | | | 23,000 | | | 11,000 | |
|
Actual labor costs were $16 per hour.
Required:
a. (1) Compute a predetermined overhead ratefor year 2 for each cost driver using the estimated costs andestimated 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 2using direct labor-hours as the allocation base. (Roundyour answer to 2 decimal places.)
| Predetermined rate per direct labor-hour | |
b. Compute the production costs for eachproduct for January using direct labor-hours as the allocation baseand the predetermined rate computed in requirementa(2). (Do not round intermediatecalculations.)
| Account | Institutional | Standard | Silver | Total |
| Direct Materials | $36,000 | $27,000 | $12,000 | $75000 |
| Direct Labor | | | | |
| Indirect Costs | | | | |
| Total Costs | | | | |
c. Compute the production costs for eachproduct for January using the cost drivers recommended by theconsultant and the predetermined rates computed in requirementa. (Note: Do not assume that totaloverhead applied to products in January will be the same foractivity-based costing as it was for the labor-hour-basedallocation.) (Do not round intermediatecalculations.)
| Account | Institutional | Standard | Silver | Total |
| Direct Materials | $36,000 | $27,000 | $12,000 | $75,000 |
| Direct Labor | | | | |
| Indirect Costs | | | | |
| Processing orders | | | | |
| Setting up production | | | | |
| Handling materials | | | | |
| Using machines | | | | |
| Performing quality control | | | | |
| Packing | | | | |
| Total Cost | | | | |
