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Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows: Sandy Beach Rocky River Direct materials
Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows:
Sandy Beach | Rocky River | |||
---|---|---|---|---|
Direct materials cost per unit | $ 20 | $ 28 | ||
Direct labor cost per unit | 15 | 19 | ||
Sales price per unit | 70 | 90 | ||
Expected production per month | 1,200 | units | 960 | units |
Keller has monthly overhead of $22,360, which is divided into the following activity pools:
Setup costs | $ 5,200 |
---|---|
Quality control | 11,000 |
Maintenance | 6,160 |
Total | $ 22,360 |
The company also has compiled the following information about the chosen cost drivers:
Sandy Beach | Rocky River | Total | |
---|---|---|---|
Number of setups | 14 | 26 | 40 |
Number of inspections | 140 | 300 | 440 |
Number of machine hours | 1,400 | 1,400 | 2,800 |
Required:
- Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.
- Calculate the production cost per unit for each of Kellers products under a traditional costing system.
- Calculate Kellers gross margin per unit for each product under the traditional costing system.
- Select the appropriate cost driver for each activity pool and calculate the activity rates if Keller wanted to implement an ABC system.
- Assuming an ABC system, assign overhead costs to each product based on activity demands.
- Calculate the production cost per unit for each of Kellers products with an ABC system.
- Calculate Kellers gross margin per unit for each product under an ABC system.
- Compare the gross margi of each product under the traditional system and ABC.
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