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. Recommended Estimated Estimated cost Activity Cost Driver Cost Driver Activity Processing orders Number of orders $ 46, eee 200 orders Setting up production Number of production runs 216, eee Handling materials Pounds of materials used 308, eee 140,880 pounds Machine depreciation and maintenance Machine-hours 220, eee 11,800 hours Performing quality control Number of inspections 75,9ee 55 inspections Packing Number of units 115, eee 460,880 units Total estimated cost $980,900 120 runs In addition, management estimated 7,200 direct labor-hours for year 2 Assume that the following cost driver volumes occurred in January, year 2. Institutional Standard Silver Number of units produced 63,888 25,000 8,888 Direct materials costs $36,888 $24,888 $14,800 Direct labor-hours 650 Number of orders 6 Number of production runs Pounds of material 15,800 6,800 2,800 Machine-hours 570 80 Number of inspections 3 3 2 Units shipped 63,880 25,000 8,888 470 11 2 480 8 2 6 130 Actual labor costs were $16 per hour. Required: a. (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. (2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. 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). 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.) Reg A1 Reg A2 Reg B Reqc 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.) Activity Processing orders Setting up production Handling materials Using machines Performing quality control Packing Rate per order per run per pound per machine hour per inspection per unit Reg A1 Reg A2 Reg B Reg C 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 Reg A1 Reg A2 Reg B Reqc 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.) Institutional Standard $ 36,000 $ 24,000 $ Silver 14,000 $ Account Direct materials Direct labor Indirect costs Total 74.000 0 0 Total cost $ 36,000 $ 24,000 S 14,000 $ 74,000 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.) Show less Institutional Standard $ 36,000 $ 24,000 Silver 14,000 Total 74.000 $ S 0 0 Account Direct materials Direct labor Indirect costs Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost 0 0 0 0 0 S 36.000 $ 24.000 $ 14.000 $ 74,000
