Question

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 $ 43,000 144,000 300,eee Estimated cost Driver Activity 200 orders 90 runs 100,eee 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 209, eee 65,500 127, see $889, 11,00 hours 5e inspections 510, eee units 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 59, eee $43, eee 450 Standard 27,000 $ 22,00 450 Silver 9, eee $18, eee 650 14 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 17,eee 5, eee 140 3,100 7e 6ee 59,00 27,000 9, eee Actual labor costs were $15 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. (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 Reg A2 Reg B Reg C 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 Activity Processing orders Setting up production Handling materials Using machines Performing quality control Packing per order per run per pound per machine hour per inspection per unit Req A1 Req A2 >

Answer 1

Solution a1:

18:50 ul. = File view Edit Cell Insert Data Draw 5 ¿ G X H Determination of activity rate for each activity Activity Estimated Overhead Cost Activity Base Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing $43,000.00 Nos of production runs $144,000.00 Nos of orders $300,000.00 Pound of materials $209,000.00 Machine hours $65,500.00 Nos of inspections $127,500.00 Units shipped Usage of Activity Base Activity Rate 200 $215.00 90 $1,600.00 100000 $3.00 110001 $19.00 50 $1,310.00 5100001 $0.25 Total $889,000.00 18 19 eet44 Sheet107 (67)) Sheet16 Sheet574 (2) Sheet574 (5) Sheet598 ) Sheet36 ) Sheet39

Solution a2:

Predetermined overhead rate based on direct labor hours = $889000/7500 = $118.53333

Soltion 2:

18:50 PO = File view Edit Cell Insert Data Draw 5 ¿ X Q R U V W Computation of Production Cost - Using Predetermined overhead rate based on direct labor hours For february Particulars Institutional Standard Direct materials costs $43,000.00 $22,000.00 Direct labor cost (direct labor hours *$15) $6,750.00 $6,750.00 Manufacturing overhead (labor hours *$118.53333) $53,340.00 $53,340.00 17 Silver $18,000.00 $9,750.00 $77,046.66 20 Production Cost $103,090.00 $82,090.00 $104,796.66 21 22 23 24 25 26 28 30 31 32 eet44 Sheet107 (67)) Sheet16 Sheet574 (2) Sheet574 (5) Sheet598 ) Sheet36 ) Sheet39

Solution 3:

18:50 PO = File view Edit Cell Insert Data Draw 5 P ¿ X M N O Q Activity 11 Processing orders Setting up production Handling materials Machine depreciation and mainte Performing quality control Packing Allocation of Overhead to Products Institutional Standard Silver Activity Rate Usage Allocated Costs Usage Allocated Costs Usage Allocated Costs $215.00 14 $3,010.00 zl $1,505.00 $1,505.00 $1,600.00 3 $4,800.00 3 $4,800.00 7 $11,200.00 $3.00 17000 $51,000.00 5000 $15,000.00 3100 $9,300.00 $19.00 600 $11,400.00 140 $2,660.00 70 $1,330.00 $1,310.00 $5,240.00 4 $5,240.00 3 $3,930.00 $0.25 59000 $14,750.00 27000 $6,750.00 9000 $2,250.00 Total $90,200.00 $35,955.00 $29,515.00 18 19 eet44 Sheet107 (67)) Sheet16 Sheet574 (2) Sheet574 (5) Sheet598 Sheet36 Sheet39

18:50 PO = File view Edit Cell Insert Data Draw 5 ¿ X | Q R S T U V W 36 37 38 39 Computation of Production Cost - Activity Based Costing For february Particulars Institutional Direct materials costs $43,000.00 Direct labor cost (direct labor hours *$15) $6,750.00 Manufacturing overhead $90,200.00 44 Standard $22,000.00 $6,750.00 $35,955.00 Silver $18,000.00 $9,750.00 $29,515.00 45 46 48 Production Cost $139,950.00 $64,705.00 $57,265.00 49 52 53 54 55 eet44 Sheet107 (67)) Sheet16 Sheet574 (2) Sheet574 (5) Sheet598 Sheet36 Sheet39