Required to producing squeaky toys. You have friends who work on the production and marketing or squeaky toys and you believe that they would lose their jobs if management dropped this line. babnammoon Should you show the activity-based costing results to management? WA un 001 000 2 noibubog odmor bobubong ou pre 9.57. Activity-Based Costing and Predetermined Overhead Allocation Rateso pue19 (L0 93,50 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 consul- tant 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. one excel Recommended Estimated Estimated Cost Activity Cost Driver Cost Driver Activity Processing orders Number of orders $ 54.000 200 orders Setting up production Number of production runs 216.000 100.runs Handling materials Pounds of materials used 360,000 120,000 pounds Machine depreciation and maintenance Machine-hours 288,000 12,000 hours Performing quality control .. Number of inspections 72.000 45 inspections Packing Number of units 144.000 480,000 units Total estimated cost.. $1,134,000 In addition, management estimated 7.500 direct labor hours for year 2 Assume that the following cost driver volumes occurred in January, year 2. Institutional Standard Silver 24,000 $24,000 450 9 9,000 $15,000 60,000 $39,000 450 12 3 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 600 15.000 580 3 60,000 6.000 140 3 24,000 6 3.000 80 3 9,000 a. Actual labor costs were SiS per hour, Required SAM 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. Also compute a predeter- mined rate for year 2 using direct labor-hours as the allocation base. Compute the production costs for each product for January using direct labor-hours as the allocation base and the predetermined rate computed in requirement ( amb cCompute the production costs for each product for January using the cost drivers recom- mended by the consultant and the predetermined rates computed in requirement (a). Note: Do o 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.) am willimi salut les d Management has seen your numbers and wants in explanation for the discrepancy between the product costs using direct labor-hours as the allocation base and the product costs using activity based costing. Write a brief response to management
