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 Cost Driver Number of orders Number of production runs Pounds of materials used Estimated Cost $ 43,000 180,000 240,000 Estimated cost Driver Activity 200 orders 100 runs 120,000 pounds Activity Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing Total estimated cost Machine-hours Number of inspections Number of units 228,000 68,500 92,000 $851,500 12,000 hours 50 inspections 460,000 units In addition, management estimated 7,500 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January, year 2. Institutional 56,000 $ 37,000 460 Silver 9,000 $ 16,000 630 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Machine-hours Number of inspections Units shipped 3 13,000 550 3 56,000 Standard 20,000 $ 25,000 480 9 2 6,000 120 2 20,000 6 5 5 3,100 60 3 9,000 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.) Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req 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.) Rate per order per run Activity Processing orders Setting up production Handling materials Using machines Performing quality control Packing per pound per machine hour per inspection per unit Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Reqc 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 Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Req 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.) Account Institutional Standard Silver Total Direct materials $ 37,000 $ 25,000 $ 16,000 $ 78,000 Direct labor 0 Indirect costs 0 Total cost $ 37,000 $ 25,000 $ 16,000 $ 78,000 Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Reqc 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 Account Institutional Standard Silver Total Direct materials $ 37,000 $ 25,000 $ 16,000 $ 78,000 Direct labor 0 Indirect costs 0 0 0 Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost 0 0 0 $ 37,000 $ 25,000 $ 16,000 $ 78,000
