Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows:

Keller has monthly overhead of $22,360, which is divided into the following cost pools:

The company has also compiled the following information about the chosen cost drivers:

Required:
1. Suppose Keller uses a traditional costing system with machine hours as the cost driver. Deter-mine the amount of overhead assigned to each product line.
2. Calculate the production cost per unit for each of Keller’s products under a traditional costing system.
3. Calculate Keller’s gross margin per unit for each product under the traditional costing system.
4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system.
5. Assuming an ABC system, assign overhead costs to each product based on activity demands.
6. Calculate the production cost per unit for each of Keller’s products with an ABC system.
7. Calculate Keller’s gross margin per unit for each product under an ABC system.
8. Compare the gross margin of each product under the traditional system andABC.

Transcribed Image Text:

Sandy Beach Rocky River Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month $20 15 70 1,200 units $28 19 90 960 units 5,200 11,000 6,160 $22,360 Setup costs Quality control Maintenance Total Number of setups Number of inspections Number of machine hours Sandy Beach Rocky River Total 40 440 2,800 14 140 1,400 26 300 1,400