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	$	50,625		225	orders
Setting up production	Number of production runs		200,000		100	runs
Handling materials	Pounds of materials used		364,000		130,000	pounds
Machine depreciation and maintenance	Machine-hours		264,000		12,000	hours
Performing quality control	Number of inspections		58,050		45	inspections
Packing	Number of units		122,500		490,000	units
Total estimated cost		$	1,059,175

In addition, management estimated 7,300 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		62,000			23,000			7,000
Direct materials costs	$	37,000		$	20,000		$	16,000
Direct labor-hours		420			410			640
Number of orders		13			10			6
Number of production runs		3			4			6
Pounds of material		17,000			6,000			3,400
Machine-hours		580			150			90
Number of inspections		3			3			4
Units shipped		62,000			23,000			7,000

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. (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.)

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 Predetermined rate per direct labor-hour Institutional Standard $ 37,000 $ 20,000 $ Silver 16,000 $ Account Direct materials Direct labor Indirect costs Total cost Total 73,000 0 0 73,000 37,000 $ 20,000 $ 16,000 $ Institutional Standard $ 37,000 $ 20,000 $ Silver 16,000 $ Total 73,000 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 0 73,000 $ 37,000 $ 20,000 $ 16,000 $