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. Estimated Cost Driver Activity Estimated Cost Driver Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality contral Packing Total estlmated cost Number of orders Number of production runs Pounds of materials used Machine-hours Number of inspections Number of units Cost S 44.000 209. 000 275,000 294,000 50,750 112 500 5995,250 200 orders 110 runs 10,000 pounds 14,000 hours 45 inspections 450,000 units In addition, management estimated 7,200 direct labor-hours for year 2 Assume that the following cost driver volumes occurred in January, year 2 Silver Number of units produced Direct materials costs Diredt labor hours Number of orders Number of production runs Pounds of material Machine-hours Number of inspections Units shipped 59,000 $36,000 480 13 27,000 $21,000 420 10 7,000 $16,000 620 17,000 570 5,000 140 2,600 70 59,000 27,000 7,000 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 (Round your answers to 2 decimal places.) Rate Processing orders Setting up production Handling materials Using machines Performing quality control Packing per order per pound per machine hour er unit (2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. (Round your answer to 2 decimal places.) 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.) 36,000 21000 S Direct materials Direct labor Indirect costs Total cost 16,000 S 73,000 36,000 $ 21,000 5 16,000S 73,000 c. Compute the production costs tor each product tor January using the cost drivers recommended by the consutant and the predetermined rates computed in requirement a. (Note Do not assume that total overhead applied to products in January ill be the same for activity-based costing as it was for the labor-hour-based allocation.) (Do not round intermediate calculations.) 16,000S Direct materials Direct labor Indirect costs 36,000 S 21,000 S 73,000 Processing orders Setting up production Hand ing materials Using machines Performing quality control Packing Total cost 36,000 S 21,000 $ 16,000 S 73,000
