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 Activity Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing Total estimated cost Recommended Cost Driver Number of orders Number of production runs Pounds of materials used Estinated Cost S49,00 144,000 220,00 Estimated cost Driver Activity 209 orders 80 runs 100.0 pounds Machine-hours Number of inspections Number of units 240,000 62,180 125.000 $840,100 12.00 hours 45 Inspections se.000 units In addition, management estimated 7700 direct labot-hours for year 2 Assume that the following cost driver volumes occurred in January, year 2 Institutional 56,000 $38,000 460 11 Standard 20.000 $21,000 Silver 10,000 $18,000 430 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 SOS 16.000 7.aa 20.

Answer 1

a)				Estimated	Driver	rate
1)				cost (a)	(b)	c=a/b
	processing orders			49,000	200	245	per order
	Setting up production			144,000	80	1800	per run
	handling materials			220,000	100,000	2.2	per pound
	using machines			240,000	12,000	20	per mh
	performing quality control			62,100	45	1380	per inspection
	packing			125,000	500,000	0.25	per unit
	Estimated activity				840,100
	estimated allocation base				7,700
	predetermined rate for direct labor				109.1039
	production cost using direct labor hours
			institutional	standard	Silver	total
b)	Account
	Direct materials		38000	21000	18000	77000
	direct labor		6440	6720	8120	21280
	indirect costs		50188	52370	63280	165838
	total cost		94628	80090	89400	264118
		direct labor = DLH*$14 per hour
		indirect cost = dLH*$109.1039
c)			institutional	standard	Silver	total
	Account
	Direct materials		38000	21000	18000	77000
	direct labor		6750	6720	8120	21590
	Indirect costs
	processing orders		2695	2695	1715	7105
	Setting up production		5400	5,400	12600	23400
	handling materials		35200	15400	5940	56540
	using machines		11800	2600	1200	15600
	performing quality control		2760	4,140	5520	12420
	packing		14000	5000	2500	21500
	total cost		116605	62955	55595	235155