Kitchen Kings Toledo plant manufactures three product lines, all multi-burner, ceramic cook tops. The plants 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 Planned annual production: Volume in units 5,000 4,000 1,000 Production runs 40 runs of 125 units 40 runs of 100 units 20 runs of 50 units Direct material $129 $151 $203 Direct labor: (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 5,000) 48,000 (12 MH 4,000) 17,000 (17 MH 1,000) The annual budgeted overhead is $1,224,000, and the companys 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 ADV GMT Direct material $ 129.00 $ 151.00 $ 203.00 Direct labor (not including set-up time) 171.00 (9 hr. @ $19) 209.00 (11 hr. @ $19) 247.00 (13 hr. @ $19) Manufacturing overhead 108.00 (9 hr. @ $12) 132.00 (11 hr. @ $12) 156.00 (13 hr. @ $12) Total $ 408.00 $ 492.00 $ 606.00 Kitchen Kings 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 firms 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 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 Toledo about the difficulty in the REG and ADV markets. After all, these were the plants bread-and-butter products, with projected annual sales of 5,000 REG units and 4,000 ADV units. Kitchen Kings director of cost management, Angela Ramirez, had been thinking for some time about a refinement in the Toledo plants 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 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 Pool Cost Driver Product Line Cost Driver Quantity for Product Line Machine related $ 310,500 Machine Hours REG 50,000 ADV 48,000 GMT 17,000 Total 115,000 Material handling 52,500 Production Runs REG 40 ADV 40 GMT 20 Total 100 Purchasing 75,000 Purchase Orders REG 100 ADV 96 GMT 104 Total 300 Setup 85,000 Production Runs REG 40 ADV 40 GMT 20 Total 100 Inspection 27,500 Inspection REG 400 ADV 400 GMT 300 Total 1,100 Shipping 66,000 Shipments REG 500 ADV 400 GMT 200 Total 1,100 Engineering 32,500 Engineering Hours REG 250 ADV 200 GMT 200 Total 650 Facility 575,000 Machine Hours REG 50,000 ADV 48,000 GMT 17,000 Total 115,000

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 Planned annual production: Volume in units Production runs 5,000 40 runs of 125 units $129 4,000 40 runs of 100 units $151 1,000 20 runs of 50 units $203 Direct material Direct labor: Machine hours (MH) Total machine hours consumed (not including setup) per product unit by product line in a year $171 (9 hrs.e $19 per hr 10 MH 50,000 (10 MHx 5,000) $209 (11 hrs. $19 per hr. $247 (13 hrs. $19 per hr. 12 MH 17 MH 48,000 (12 MHx 4,000) 17,000 (17 MHx 1,000) 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 plant's traditional costing system, are shown in the following table REG ADV GMT Direct material $129.00 $151.00 $203.00 Direct labor (not including set-up time) 171.00 (9 hr. $19) 209.00 (11 hr. $19) 247.00 (13 hr. $19) Manufacturing overhead 108.00 (9 hr. e $12) 132.00 (11 hr. $12) _156.00 (13 hr. e $12)