Kitchen King's Toledo plant manufactures three product lines, all multi-burner, ceramic cook tops. The plant's three product models are the Regular (REG), the Advanced (ADV), and the Gourmet (GMT). Until recently, the plant used a job-order product-costing system, with manufacturing overhead applied on the basis of direct-labor hours. The following table displays the basic data upon which the traditional costing system was based. REG ADV GMT 5,000 40 runs of 125 units $129 4,000 40 runs of 100 units $151 1,000 20 runs of 50 units $203 Planned annual production: Volume in units Production runs Direct material Direct labor: (not including setup) Machine hours (MH) per product unit Total machine hours consumed by product line in a year $171 (9 hrs. @ $19 per hr.) $209 (11 hrs. @ $19 per hr.) $247 (13 hrs. @ $19 per hr.) 10 MH 12 MH 17 MH 17,000 (17 MH * 1,000) 50,000 (10 MH * 5,000) 48,000 (12 MH X 4,000) The annual budgeted overhead is $1,224,000, and the company's predetermined overhead rate is $12 per direct-labor hour. The product costs for the three product models, as reported under the plants traditional costing system, are shown in the following table. REG Direct material $129.00 Direct labor (not including set-up time) 171.00 (9 hr. @ $19) Manufacturing overhead 108.00 (9 hr. @ $12) Total $408.00 ADV GMT $ 151.00 $ 203.00 209.00 (11 hr. @ $19) 247.00 (13 hr. @ $19) 132.00 (11 hr. @ $12) 156.00 (13 hr. @ $12) $492.00 $606.00 Kitchen King's pricing policy is to set a target price for each product equal to 130 percent 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 firm's target prices. However, these results were partially offset by greater- 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 King's customers did not seem to hesitate to place orders, Moreover, the company's competitors did not mount a challenge in the market for the GMT product line. Nevertheless, concern continued to mount in Toledo about the difficulty in the REG and ADV markets. After all, these were the plant's bread-and-butter products, with projected annual sales of 5,000 REG units and 4,000 ADV units. Kitchen King's director of cost management, Angela Ramirez, had been thinking for some time about a refinement in the Toledo plant's product-costing system. Ramirez wondered if the traditional, 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 plant's product-costing system. After some discussion, an ABC proposal was made to the company's top management, and approval was obtained. The data collected for the new ABC system is displayed in the following table. Activity Machine related Activity Cost Pool $310,500 Material handling 52,500 Purchasing 75,000 100 Setup 85,000 Cost Driver Product Quantity for Cost Driver Line Product Line Machine Hours REG 50,000 ADV 48,000 GMT 17,000 Total 115,000 Production Runs REG ADV GMT Total 100 Purchase Orders REG ADV GMT Total Production Runs REG ADV GMT Total Inspection REG 400 ADV 400 GMT 300 Total 1,100 Shipments REG 400 GMT 200 Total 1,100 Engineering Hours REG 250 ADV 200 GMT 200 Total 650 Machine Hours REG 50,000 48,000 GMT 17,000 Total 115,000 100 Inspection 27,500 Shipping 66,000 500 ADV Engineering 32,500 Facility 575,000 ADV Required: 1. Show how the company's overhead rate of $12 per direct-labor hour was calculated. hours per direct labor hour Predetermined overhead rate 2. Complete an activity-based costing analysis for Kitchen King's three product lines. (Round "Pool Rate" and "Activity Cost per Unit of Product" to 2 decimal places.) D Activity Activity Cost Pool Cost Driver Cost Driver Pool Rate Product Line Quantity Cost Driver Quantity for Product Line Activity Cost for Product Line Product Line Production Volume Activity Cost per Unit of Product Machine related $ 310,500 Machine hours REG ADV GMT Total REG 50,000 48,000 17,000 115,000 $ 0 Material handling 52,500 Production runs ADV GMT Total Purchasing 75,000 Purchase orders REG 40 201 100 $ 1001 96 1041 300 $ 0 ADV GMT Total REG ADV GMT E Setup 85,000 Production runs 40 201 100 400 400 $ Total REG 0 Inspection 27,500 Inspection hours $ 0 Shipping 66,000 Shipments ADV GMT Total REG ADV GMT Total 1,100 500 400 200 1,100 250 $ Engineering 32,500 Engineering REG hours 2001 ADV GMT Total $ 0 Facility 575,000 Machine hours REG ADV 200 650 50,000 48,000 17,000 115,000 $ 0 GMT Total Grand total