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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

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.

Activity Recommended Cost Driver Estimated Cost Estimated Cost Driver Activity
Processing orders Number of orders $ 43,000 200 orders
Setting up production Number of production runs 153,000 90 runs
Handling materials Pounds of materials used 300,000 120,000 pounds
Machine depreciation and maintenance Machine-hours 216,000 12,000 hours
Performing quality control Number of inspections 75,900 55 inspections
Packing Number of units 104,000 520,000 units
Total estimated cost $ 891,900

In addition, management estimated 7,600 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 59,000 23,000 10,000
Direct materials costs $ 39,000 $ 21,000 $ 17,000
Direct labor-hours 500 410 620
Number of orders 12 7 7
Number of production runs 3 3 6
Pounds of material 16,000 7,000 3,100
Machine-hours 610 140 80
Number of inspections 3 4 3
Units shipped 59,000 23,000 10,000

Actual labor costs were $14 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. (Round your answers to 2 decimal places.)

(b)

Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. (Round your answer to 2 decimal places.)

(c)

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). (Round "Indirect costs" to the nearest dollar.)

(d)

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.)

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