1:05 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. Estimated Recorded Activity Cast Driver Processing orders Number of orders Setting up production Number of production runs Hanc ing materials Pounds of materials used Machine depreciation and maintenance Machine hours Performing quality control Number of inspections Packing Number of units Total estimated cost $ 49,500 182.000 242.000 286,000 44,450 122,500 $931,450 Estimated cost Driver Activity 225 orders 110 runs 110,000 pounds 13.000 hours 35 inspections 490,000 units In addition, management estimated 7,900 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January, year 2: Institutional 56 COD $3B OOD 440 Standard 21,000 $21,000 Silver 7 000 $12000 640 10 Number of units produced Direct materials casts Direct labor hours Number of orders Number of production runs Pounds of material Machine-hours Number of inspections Units shipped 13 000 5,000 2900 610 140 90 56.000 21,000 7000 Actual labor costs were $15 per hour. Required: (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.) Rate per order Activity Processing orders Setting up production Handling materials Using machines Performing quality control per run per pound per machine hour per inspection per unit Packing (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 Direct materials Direct labor Institutional $ 38,000 Standard $ 21,000 Silver 12,000 Total 71,000 $ $ Indirect costs 0 71,000 Total cost $ 38,000 $ 21,000 $ 12,000 $ 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.) Institutional $ 38,000 Standard $ 21,000 Silver 12,000 Total 71,000 $ $ Account Direct materials Direct labor Indirect costs Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost $ 38,000 $ 21,000 $ 12,000 $ 71,000
