Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional, standard, and silver. It applies all...

    

Transcribed Image Text:

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 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Recommended Cost Driver Number of orders Number of production runs Pounds of materials used Machine-hours Number of inspections Units shipped Machine-hours Number of inspections Number of units Institutional Standard 64,000 23,000 $ 37,000 $25,000 410 10 3 Actual labor costs were $14 per hour. 18,000 580 4 64,000 In addition, management estimated 8,000 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January year 2: 400 10 2 Estimated Cost $ 50,625 6,000 140 3 23,000 153,000 275,000 260,000 56,250 102,000 $896,875 Silver 10,000 $17,000 560 6 6 Estimated Cost Driver Activity 225 orders 90 runs 110,000 pounds 3,500 70 3 10,000 13,000 hours 45 inspections 510,000 units 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. (Round your answers to 2 decimal places.) Activity Processing orders Setting up production Handling materials Using machines Performing quality control Packing Rate (2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. (Round your answer to 2 decimal places.) Predetermined rate per direct labor-hour per order per run per pound per machine hour per inspection per unit Account Direct materials Direct labor Indirect costs Total cost (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). (Round "Indirect costs" to the nearest dollar.) Institutional Standard $ 37,000 $ 25,000 $ Silver 17,000 $ Total 79,000 (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.) Account Direct materials Direct labor Indirect costs Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost Institutional Standard S 37.000 $ 25,000 $ Silver 17,000 $ Total 79,000 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 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Recommended Cost Driver Number of orders Number of production runs Pounds of materials used Machine-hours Number of inspections Units shipped Machine-hours Number of inspections Number of units Institutional Standard 64,000 23,000 $ 37,000 $25,000 410 10 3 Actual labor costs were $14 per hour. 18,000 580 4 64,000 In addition, management estimated 8,000 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January year 2: 400 10 2 Estimated Cost $ 50,625 6,000 140 3 23,000 153,000 275,000 260,000 56,250 102,000 $896,875 Silver 10,000 $17,000 560 6 6 Estimated Cost Driver Activity 225 orders 90 runs 110,000 pounds 3,500 70 3 10,000 13,000 hours 45 inspections 510,000 units 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. (Round your answers to 2 decimal places.) Activity Processing orders Setting up production Handling materials Using machines Performing quality control Packing Rate (2) Compute a predetermined rate for year 2 using direct labor-hours as the allocation base. (Round your answer to 2 decimal places.) Predetermined rate per direct labor-hour per order per run per pound per machine hour per inspection per unit Account Direct materials Direct labor Indirect costs Total cost (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). (Round "Indirect costs" to the nearest dollar.) Institutional Standard $ 37,000 $ 25,000 $ Silver 17,000 $ Total 79,000 (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.) Account Direct materials Direct labor Indirect costs Processing orders Setting up production Handling materials Using machines Performing quality control Packing Total cost Institutional Standard S 37.000 $ 25,000 $ Silver 17,000 $ Total 79,000

Answer rating: 100% (QA)

To calculate the cost per ... View the full answer