PA4-4 Selecting Cost Drivers, Assigning Costs Using Activity Rates [LO 4-1, 4-3, 4-4, 4-6]

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

	Sandy Beach			Rocky River
Direct materials cost per unit	$	20		$	28
Direct labor cost per unit		15			19
Sales price per unit		70			90
Expected production per month		1,200	units		960	units

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

Setup costs	$	5,200
Quality control		11,000
Maintenance		6,160
Total	$	22,360

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

	Sandy Beach	Rocky River	Total
Number of setups	14	26	40
Number of inspections	140	300	440
Number of machine hours	1,400	1,400	2,800

Required:
1.	Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round your intermediate calculations.)

2.	Calculate the production cost per unit for each of Kellers products under a traditional costing system.(Round your intermediate calculations and final answers to 2 decimal places.)

3.	Calculate Kellers gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

4.	Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system. (Round your answers to 2 decimal places.)

5.	Assuming an ABC system, assign overhead costs to each product based on activity demands.(Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

6.	Calculate the production cost per unit for each of Kellers products with an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

7.	Calculate Kellers gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

8.	Compare the gross margin per unit of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)