Problem 9-57 (Algo) Activity-Based Costing and Predetermined Overhead Allocation Rates (LO 9-3, 5, 6) 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 38,500 171,000 390,000 Estimated cost Driver Activity 175 orders 90 runs 130,000 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 252,000 56,000 122,500 $1,030,000 12,000 hours 40 inspections 490,000 units In addition, management estimated 7,400 direct labor-hours for year 2 Assume that the following cost driver volumes occurred in January, year 2 Institutional 56,000 $43,000 460 Standard 26,000 $ 27,000 490 11 Silver 10,000 $14,000 580 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 15,000 610 3,300 6,000 150 70 56,000 26,000 10,000 Actual labor costs were $16 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. (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.) Complete this question by entering your answers in the tabs below. Reg A1 Req A2 Req B ReqC 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 per order per run per pound per machine hour per inspection per unit Packing
