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 $ 45,000 180,000 264,000 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 266,000 62,550 150,000 $967,550 14,000 hours 45 inspections 500,000 units In addition, management estimated 7,100 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January, year 2: Institutional 60,000 $42,000 420 Standard 27,000 $25,000 Silver 9,000 $12,000 560 440 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 14,000 550 6,000 140 3,300 80 60,000 27,000 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 Rate | $ 225.00 per order per run per pound per machine hour per inspection per unit Packing 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.) Institutional Standard Silver Total $ 42,000 $ 25,000 $ 12,000 $ 79,000 Account Direct materials Direct labor Indirect costs Total cost $ 42,000 $ 25,000 $ 12,000 $ 79,000 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.) Institutional Standard Silver Total $ 42,000 $ 25,000 $ 12,000 $ 79,000 Account Direct materials Direct labor Indirect costs Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost $ 42,000 $ 25,000 $ 12,000 $ 79,000
