Here is a problem I had before. I also pasted the answer I havebelow. I would like if someone could please explain where are the numbers coming from on the answer below. I have highlighted in green the area I don't understand. Thanks!

PROBLEM:

Kitchen Kings Singapore plant manufactures three product lines, all multi-burner ceramic

cooktops. The plants three product models are the Regular (REG), the Advanced (ADV)

and the Gourmet (GMT). Until recently, the plant used a job costing system, with

manufacturing overhead applied on the basis of direct labour hours. The following table

displays the basic data upon which the conventional costing system was based.

Planned annual production	REG	ADV	GMT
Volume in units	5000	4000	1000
Production runs	40 runs of 125 units	40 runs of 100 units	20 runs of 50 units
Direct material	$129	$151	$203
Direct labour (not including setup)	$171 (9 hrs @ $19 per hr)	$209 (11 hrs @ $19 per hr)	$247 (13 hrs @ $19 per hr)
Machine hours (MH) per product unit	10 MH	12 MH	17 MH
Total machine hours consumed by product line in a year	50 000 (10 MH 5000)	48 000 (12 MH 4000)	17 000 (17 MH 1000)

The annual budgeted overhead is $1 224 000 and the companys predetermined

overhead rate is $12 per direct labour hour. The product costs for the three product

models, as reported under the plants traditional costing system, are shown in the

following table:

	REG	ADV	GMT
Direct material	$129	$151	$203
Direct labour (not including setup time)	$171	$209	$247
Manufacturing overhead	$108 (9 hrs @ $12 per hr)	$132 (11 hrs @ $12 per hr)	$156 (13 hrs @ $12 per hr)
Total	$408	$492	$606

Kitchen Kings pricing policy is to set a target price for each product equal to 130 per

cent of the full product cost. Due to price competition from other appliance manufacturers,

REG units were selling at $525 and ADV units were selling for $628. These prices were

somewhat below the firms target prices. However, these results were partially offset by

great-than-expected profits on the GMT product line. Management had raised the price on

the GMT model to $800 which was higher than the original target price. Even at this price,

Kitchen Kings customers did not seem to hesitate to place orders. Moreover, the

companys competitors did not mount a challenge in the market for the GMT product line.

Nevertheless, concern continued to mount in Singapore about the difficulty in the REG and

ADV markets. After all, these were the plants bread-and-butter products, with projected

annual sales of 5000 REG units and 4000 ADV units.

Kitchen Kings director of cost management, Angela Hui, had been thinking for some

time about a refinement in the Singapore plants product costing system. Hui wondered if

the conventional volume-based system was providing management with accurate data

about product costs. She had read about activity-based costing and wondered if ABC

would be an improvement to the plants product costing system. After some discussion, an

ABC proposal was made to the companys top management and approval was obtained.

The data collected for the new ABC system is displayed in the following table.

Activity	Activity cost	Activity driver	Product line	Quantity of activity driver
Machine related	$310 500	Machine hours	REG ADV GMT Total	50 000 48 000 17 000 115 000
Material handling	52.500	Production runs	REG ADV GMT Total	40 40 20 100
Purchasing	75 000	Purchase orders	REG ADV GMT Total	1.0 96 104 300
Setup	85 000	Production runs	REG ADV GMT Total	40 40 20 100
Inspection	27.500	Inspection hours	REG ADV GMT Total	4.0 4.0 300 1 100
Shipping	66 000	Shipments	REG ADV GMT Total	5.0 4.0 200 1 100
Engineering	32.500	Engineering hours	REG ADV GMT Total	250 2.0 200 650
Facility	575 000	Machine hours	REG ADV GMT Total	50 000 48 000 17 000 115 000

Required:

1. Prepare a table similar to Exhibits which estimates the new product cost for each product line under ABC.

SOLUTION:

Calculation of new product costs under ABC:

	REG	ADV	GMT
Direct material	$129.00	$151.00	$203.00
Direct labour (not including set up time)	171.00 (9 hr. @ $19)	209.00 (11 hr. @ $19)	247.00 (13 hr. @ $19)
Total direct costs per unit	$300.00	$360.00	$450.00
Manufacturing overhead (based on ABC)*:
Machine-related	$ 27.00	$ 32.40	$ 45.90
Setup	4.20	5.25	10.50
Purchasing	5.00	6.00	26.00
Material handling	6.80	8.50	17.00
Quality assurance	2.00	2.50	7.50
Packing/shipping	6.00	6.00	12.00
Engineering design	2.50	2.50	10.00
Facility	50.00	60.00	85.00
Total ABC overhead cost per unit	$103.50	$123.15	$213.90
Total product cost per unit	$403.50	$483.15	$663.90

* calculation of overhead costs per product

Activity	Pool rate	Product line	Activity driver quantity for product	Activity cost for product	Product line Prod. volume	Activity cost per unit of product
Machine	$ 2.70	REG	50 000	$135 000	5000	$27.00
Related		ADV	48 000	129 600	4000	32.40
		GMT	17 000	45 900	1000	45.90
		Total	115 000	$310 500
Material	525.00	REG	40	$ 21 000	5000	4.20
Hand.		ADV	40	21 000	4000	5.25
		GMT	20	10 500	1000	10.50
		Total	100	$ 52 500
Purch.	250.00	REG	100	$ 25 000	5000	5.00
		ADV	96	24 000	4000	6.00
		GMT	104	26 000	1000	26.00
		Total	300	$ 75 000
Setup	850.00	REG	40	$ 34 000	5000	6.80
		ADV	40	34 000	4000	8.50
		GMT	20	17 000	1000	17.00
		Total	100	$ 85 000
Inspect.	25.00	REG	400	$ 10 000	5000	2.00
		ADV	400	10 000	4000	2.50
		GMT	300	7 500	1000	7.50
		Total	1100	$ 27 500
Ship.	60.00	REG	500	$ 30 000	5000	6.00
		ADV	400	24 000	4000	6.00
		GMT	200	12 000	1000	12.00
		Total	1100	$ 66 000
Eng.	50.00	REG	250	$ 12 500	5000	2.50
		ADV	200	10 000	4000	2.50
		GMT	200	10 000	1000	10.00
		Total	650	$ 32 500
Fac.	5.00	REG	50 000	$250 000	5000	50.00
		ADV	48 000	240 000	4000	60.00
		GMT	17 000	85 000	1000	85.00
		Total	115 000	$575 000
		Grand total		$1 224 000