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 Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing Total estimated cost Recommended Cost Driver Number of orders Number of production runs Pounds of materials used Machina-hours Number of inspections Number of units Estimated Cosi $49.000 187 ODD 296.000 190 000 55.500 125.000 $902 500 Estimated Cost Driver Activity 200 orders 110 runs 130.000 pounds 10.000 hours 50 inspections 500,000 units 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 50.000 $42.000 460 Standard 25.000 S24.000 450 Silver 9.000 $16.000 600 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 3400 16 000 600 7.000 130 60.000 25,000 9.000 Actual labor costs were $15 per hour. Required: (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.) 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 (2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base (Round your answer to 2 decimal places.) Predetermined rale per direct labor-hour 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) (Do not round Intermediate calculations.) Account Direct materials Direct labor Indirect costs Institutional S 42,000 Standard 5 24,000 Silver 15,000 Total 82.000 5 5 Total cost 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.) (Do not round intermediate calculations.) Account Direct materials Institutional S 42,000 Standard $ 24,000 Silver 16.000 S Total B 2.000 5 Direct labor Indirect costs Processing orders Setting up production Handling materials Performing quality control Packing Total cost
