Cost driver rates with practical capacity Kohlman Company manufactures two products: K33 and K77. Estimated unit cost and production data follow:

REQUIRED

(a) Estimate the manufacturing cost per unit of each product if support costs are assigned to products using activity-based cost driver rates based on practical capacity.

(b) Explain why the unit cost for K33 differs from that for K77.

(c) What operational changes might the company take, motivated by analysis of the activity-based cost driver rates?

(d) Compute the variance between the estimated manufacturing support costs and the support costs assigned to the company's products in part (a).

(e) What action steps might the company take based on the variances com¬ puted in part (d)?

(f) Should Kohlman base its activity-based cost driver rates on practical capac¬ ity or on budgeted usage of the drivers? Explain.

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ITEM K33 K77 Direct materials cost $30 $45 Direct labor cost ($12 per hour) $24 $60 Estimated production in units 400,000 150,000 Manufacturing support costs are estimated to be $6,535,000 for the current year. Activity cost pools and cost drivers are as follows: COST DRIVER UNITS DEMANDED BY Activity Activity Costs Practical Cost Driver Capacity K33 K77 Machine setups $ 425,000 Setup hours 6,500 2,000 4,200 Purchase ordering 10,000 Number of orders 100 25 50 Machining 6,000,000 Number of machine 75,000 40,000 15,000 hours Inspection 36,000 Number of batches 1,200 400 600 Packing and shipping 64,000 Number of shipments 1,600 80 1,500 Total $6,535,000