Answer:
Kitchen Supply, Inc. (KSI)
1A. Predetermined rate for each cost driver:
Activity Cost Driver Overhead Rate
Processing orders $46,000/200 orders $230 per order
Setup 240,000/120 runs $2,000 per production run
Handling materials 325,000/130,000 pounds $2.5 per pound
Machine depreciation
and maintenance 264,000/12,000 hours $22 per machine hour
Quality control 57,600/45 inspections $1,280 per inspection
Packing 115,000/60,000 units $0.25 per unit
1B. A predetermined rate, using direct labor-hours
= $136.05 per dlh
3. Production costs, using direct labor-hours and the predetermined rate:
Institutional Standard Silver Total
Number of units produced 63,000 20,000 11,000 94,000
Direct labor-hours 490 430 580 1,500
Direct materials costs $38,000 $23,000 $15,000 $76,000
Direct labor costs 7,350 6,450 8,700 22,500
Total overhead costs allocated 66,665 58,502 78,909 204,076
Total production costs $112,015 $87,952 $108,359 $302,576
4. Production costs, using the recommended cost drivers and the predetermined activity rates:
Institutional Standard Silver Total
Number of units produced 63,000 20,000 11,000 94,000
Direct materials costs $38,000 $23,000 $15,000 $76,000
Direct labor costs 7,350 6,450 8,700 22,500
Total overhead costs allocated 81,450 33,720 27,540 142,710
Total production costs $126,800 $63,170 $51,240 $241,210
Explanation:
a) Data and Calculations:
Estimated Direct labor-hours for Year 2 = 7,700
Estimated overhead costs = $1,047,600
Activity Recommended Estimated Cost Estimated
Cost Driver Cost Driver Activity
Processing orders Number of orders $46,000 200 orders
Setup Number of runs 240,000 120 runs
Handling materials Pounds of materials 325,000 130,000 pounds
Machine depreciation
and maintenance Machine-hours 264,000 12,000 hours
Quality control Number of inspections 57,600 45 inspections
Packing Number of units 115,000 460,000 units
Total estimated cost $1,047,600
Cost Driver Volumes in January Year 2:
Institutional Standard Silver Total
Number of units produced 63,000 20,000 11,000 94,000
Direct materials costs $38,000 $23,000 $15,000
Direct labor-hours 490 430 580 1,500
Direct labor costs 7,350 6,450 8,700 22,500
Number of orders 12 10 6 28
Number of production runs 4 3 5 12
Pounds of material 15,000 6,000 3,300 24,300
Machine-hours 560 130 60 750
Number of inspections 4 2 3 9
Units shipped 63,000 20,000 11,000 94,000
Actual labor costs were $15 per hour.
Activity Cost Driver Estimated cost Estimated Activity Overhead Rate
Processing orders $46,000 200 orders $230 per order
Setup 240,000 120 runs $2,000 per run
Handling materials 325,000 130,000 pounds $2.5 per pound
Machine depreciation
and maintenance 264,000 12,000 hours $22 per m. hour
Quality control 57,600 45 inspections $1,280 per inspec
Packing 115,000 460,000 units $0.25 per unit
Activity Cost Driver Overhead Rate Institutional Standard Silver Total
Processing orders $230 per order $2,760 $2,300 $1,380 $6,440
Setup $2,000 per run 8,000 6,000 10,000 24,000 Handling materials $2.5 per pound 37,500 15,000 8,250 60,750
Machine depreciation
and maintenance $22 per m. hour 12,320 2,860 1,320 16,500
Quality control $1,280 per insp. 5,120 2,560 3,840 11,520
Packing $0.25 per unit 15,750 5,000 2,750 23,500
Total overhead costs allocated $81,450 $33,720 $27,540 $142,710
Institutional Standard Silver Total
Number of units produced 63,000 20,000 11,000 94,000
Direct materials costs $38,000 $23,000 $15,000 $76,000
Direct labor costs 7,350 6,450 8,700 22,500
Total overhead costs allocated 81,450 33,720 27,540 142,710
Total production costs $126,800 $63,170 $51,240 $241,210
Predetermined rate for Year 2, using direct labor-hours:
= Total overhead costs/Total direct labor-hours
= $1,047,600/7,700 = $136.05 per dlh
Institutional Standard Silver Total
Number of units produced 63,000 20,000 11,000 94,000
Direct labor-hours 490 430 580 1,500
Direct materials costs $38,000 $23,000 $15,000 $76,000
Direct labor costs 7,350 6,450 8,700 22,500
Total overhead costs allocated 66,665 58,502 78,909 204,076
Total production costs $112,015 $87,952 $108,359 $302,576
