Kevin\'s Kitchen\'s Detroit plant manufactures three product lines, all multi-bu
ID: 2519369 • Letter: K
Question
Kevin's Kitchen's Detroit plant manufactures three product lines, all multi-burner, ceramic cook tops The plant's three product lines are the Regular (REG), the Advanced (ADV) and the Gourmet (GMT. Until recently, the plant used a job-order product-costing system, with manufacturing overhead applied on the basis of direct labor hours Based on Kein's Kitchen's usual markup percentage, Kevin's Kitchen was losing sales for the REG and ADV models, but was struggling to meet demand for the GMT model, even though they had increased the markup slightly over its normal percentage Since REG and ADV were the bed and butter products, management was concerned that other companies were under-pricing them in the market. Management was proud of the popularity of its GMT model, they could not sell a sufficient number of this product to remain profitable External consultants hired by the company recommends that the company covert to an ABC costing model to obtain a "more accurate" cost on which to apply the normal markup percentage. As a member of the consulting team, you have been asked to prepare a report explaining the alternative prices suggested by ABC costing Kevin's Kitchen management has provided you the following information DATA INPUT REG ADV GMT Units Produced Direct Labor per unit Total Hours 5,000 4,000 1,000 10,000 45,000 44,000 13,000 102,000 Cost per DL Hour DL per unit $ 19.00 $19.00$ 19.00 $ 171.00 $ 209.00 $ 247.00 Direct Materia $ 129.00$ 151.00$ 203.00 Targeted sales price 130% 130% 130%Explanation / Answer
Requirement 1 Schdeule of of company's predetermined overhead rate based on traditional costing method. Activity Amount Machine related 310500 Material handling 52500 Purchasing 75000 Setup 85000 Inspection 27500 Shipping 66000 Engineering 32500 Facility 575000 Total Overhead A 1224000 Direct labor hours REG 45000 ADV 44000 GMT 13000 Total Direct labor hours B 102000 Predetermined overhead rate A/B 12 Requirement 2 Schedule of each product's cost and resultant prices under trading costing method In terms of Per unit Details REG ADV GMT Direct materials 129 151 203 Direct Labor 171 209 247 Manufacturing overhead 108 132 156 Total cost of each product 408 492 606 Mark Up @30% on total cost 122.4 147.6 181.8 Resultant Revenue of each product 530.4 639.6 787.8 In term of total cost & revenue Details REG ADV GMT Direct materials 645000 604000 230000 Direct Labor 855000 836000 247000 Manufacturing overhead 540000 528000 156000 Total cost of each product 2040000 1968000 633000 Mark Up @30% on total cost 612000 590400 189900 Resultant Revenue of each product 2652000 2558400 822900 Requirement 3 Schedule of Pool rates for each cost pool as well as overhead that will be assigned to each product. Activity Cost Driver REG ADV GMT Machine related Driver quanity Machine Hours 115000 50000 48000 17000 Amount $ 310500 135000 129600 45900 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 27 32.4 45.9 Material handling Driver quanity Production runs 100 40 40 20 Amount $ 52500 21000 21000 10500 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 4.2 5.25 10.5 Purchasing Driver quanity Purchase orders 300 100 96 104 Amount $ 75000 25000 24000 26000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 5 6 26 Setup Driver quanity Production runs 100 40 40 20 Amount $ 85000 34000 34000 17000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 6.8 8.5 17 Inspection Driver quanity Inspection hours 1100 400 400 300 Amount $ 27500 10000 10000 7500 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 2 2.5 7.5 Shipping Driver quanity Shipments 1100 500 400 200 Amount $ 66000 30000 24000 12000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 6 6 12 Engineering Driver quanity Engineering Hours 650 250 200 200 Amount $ 32500 12500 10000 10000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 2.5 2.5 10 Facility Driver quanity Machine Hours 115000 50000 48000 17000 Amount 575000 250000 240000 85000 Production Volume 5000 4000 1000 Per unit overhead to be charged 50 60 85 Total Overhead to be applied 517500 492600 213900 Overhead to be applied per unit 103.5 123.15 213.9 Requirement 4 Schedule of each product's cost and resultant prices under ABC method In terms of Per unit Details REG ADV GMT Direct materials 129 151 203 Direct Labor 171 209 247 Manufacturing overhead 103.5 123.15 213.9 Total cost of each product 403.5 483.15 663.9 Mark Up @30% on total cost 121.05 144.945 199.17 Resultant Revenue of each product 524.55 628.095 863.07 In term of total cost & revenue Details REG ADV GMT Direct materials 645000 604000 230000 Direct Labor 855000 836000 247000 Manufacturing overhead 517500 492600 213900 Total cost of each product 2017500 1932600 690900 Mark Up @30% on total cost 605250 579780 207270 Resultant Revenue of each product 2622750 2512380 898170 Requirment 5 Cost per unit under traditional costing method 408 492 606 Cost per unit under ABC method 403.5 483.15 663.9 Overcosted / (Under costed) Overcosted Overcosted (under costed) Requirement 6 & 7 : Pool cost after dollar change in Machine related & facility Schdeule of of company's predetermined overhead rate based on traditional costing method. Activity Amount Machine related 621000 Material handling 52500 Purchasing 75000 Setup 85000 Inspection 27500 Shipping 66000 Engineering 32500 Facility 1150000 Total Overhead A 2109500 Direct labor hours REG 45000 ADV 44000 GMT 13000 Total Direct labor hours B 102000 Predetermined overhead rate A/B 20.6813725 Schedule of each product's cost and resultant prices under trading costing method In terms of Per unit Details REG ADV GMT Direct materials 129 151 203 Direct Labor 171 209 247 Manufacturing overhead 186.13 227.50 268.86 Total cost of each product 486.13 587.50 718.86 Mark Up @30% on total cost 145.84 176.25 215.66 Resultant Revenue of each product 631.97 763.74 934.52 In term of total cost & revenue Details REG ADV GMT Direct materials 645000 604000 230000 Direct Labor 855000 836000 247000 Manufacturing overhead 930661.8 909980.392 268857.8 Total cost of each product 2430662 2349980.39 745857.8 Mark Up @30% on total cost 729198.5 704994.118 223757.4 Resultant Revenue of each product 3159860 3054974.51 969615.2 Activity Cost Driver Total REG ADV GMT Machine related Driver quanity Machine Hours 115000 50000 48000 17000 Amount $ 621000 270000 259200 91800 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 54 64.8 91.8 Material handling Driver quanity Production runs 100 40 40 20 Amount $ 52500 21000 21000 10500 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 4.2 5.25 10.5 Purchasing Driver quanity Purchase orders 300 100 96 104 Amount $ 75000 25000 24000 26000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 5 6 26 Setup Driver quanity Production runs 100 40 40 20 Amount $ 85000 34000 34000 17000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 6.8 8.5 17 Inspection Driver quanity Inspection hours 1100 400 400 300 Amount $ 27500 10000 10000 7500 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 2 2.5 7.5 Shipping Driver quanity Shipments 1100 500 400 200 Amount $ 66000 30000 24000 12000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 6 6 12 Engineering Driver quanity Engineering Hours 650 250 200 200 Amount $ 32500 12500 10000 10000 Production Volume 5000 4000 1000 Per unit overhead to be charged $ 2.5 2.5 10 Facility Driver quanity Machine Hours 115000 50000 48000 17000 Amount 1150000 500000 480000 170000 Production Volume 5000 4000 1000 Per unit overhead to be charged 100 120 170 Total Overhead to be applied 902500 862200 344800 Overhead to be applied per unit 180.5 215.55 344.8 Schedule of each product's cost and resultant prices under ABC method In terms of Per unit Details REG ADV GMT Direct materials 129 151 203 Direct Labor 171 209 247 Manufacturing overhead 180.5 215.55 344.8 Total cost of each product 480.5 575.55 794.8 Mark Up @30% on total cost 144.15 172.665 238.44 Resultant Revenue of each product 624.65 748.215 1033.24 In term of total cost & revenue Details REG ADV GMT Direct materials 645000 604000 230000 Direct Labor 855000 836000 247000 Manufacturing overhead 902500 862200 344800 Total cost of each product 2402500 2302200 821800 Mark Up @30% on total cost 720750 690660 246540 Resultant Revenue of each product 3123250 2992860 1068340 Conclusion as required by requirement 7 Cost per unit under traditional costing method 486.13 587.50 718.86 Cost per unit under ABC method 480.5 575.55 794.8 Overcosted / (Under costed) Overcosted Overcosted (under costed) We appreciate the rating of our answers. 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