Kitchen Supp y Inc (KS manufactu es hree es o fla are institutio a standard. ?nd

Question

Kitchen Supp y Inc (KS manufactu es hree es o fla are institutio a standard. ?nd s? ver apples ? Indirect costs according D a predetermined rle base on arect labor hours. A consul ant recent y suggested hat the company switch activity-besed costing system and prepered the following cost estimates for year 2 for the recommended cost dnvers an Estimated Cost Driver Activity 200 orders Activity Processing orders Seting up production Handlin malerials Cost Driver Cost 48,000 171 000 38 000 273,000 75,000 Number of orderS $ 20 C00 paunds 13.000 haurs Number of inspections Number of units 55 inspections 480,000 units PackingQualitralcesf Total estimated cost $1 047 900 In addition, management estimated 7,800 direct labor hours for year 2. Assume that the tollowing cost driver volumes occurred in January, year 2 20,000 $26,DDO 450 Silver 8,000 $16,DDO 590 Number of units produced Direct mateials costs Direlabn-hours Number of orders Number of production runs Pounds of matenal Machine hours 65,000 $38 D0O 440 12 5,000 150 2,800 60 15,000 Units shipped 65,000 20,000 8,000 Actual labor costs were S14 per hour (1 Compute a predetermined overhead rate or year 2 or each oost driver using the estimated costs ?nd estimated cost driver units prepared by he consultant Round your answers to 2 decimal places Rate Processing orders Seting up production Handling materials Using machines Performing quality contral Packng per orde per run per pound per machine hour per inspection per unit

Explanation / Answer

Rreq a-1 STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Processing orders Orders 48,000 200 240.00 Setting up Prod. Runs 171,000 90 1,900.00 handling material Pounds 336,000 120,000 2.80 Depreciation and maintenance MH 273,000 13,000 21.00 Performing quality Inspections 75,900 55 1,380.00 packing No. of Units 144,000 480,000 0.30 Req a-2 Pre-determined OH rate per labour hour: Estimated Overhehads / Estimated labour hours $ 1047900 /7800 DLH = $ 134.35 per DLH Req b. TOTAL PRODUCTION COST UNDER TRADITIONAL METHOD: Institutional Standard Silver Total Direct material 38000 26000 16000 80000 Direct labour coost @ 14 per hour 6160 6300 8260 20720 Overheads cost @ 134.35 per DLH 59114 60457.5 79266.5 198838 Total cost 103274 92758 103526 299558 Req c: Institutional Standard Silver Total Direct material 38000 26000 16000 80000 Direct labourr 6160 6300 8260 20720 Indirect cost Processing orders at 240 per order 2880 2640 1680 7200 Setting up at 1900 per run 3800 3800 13300 20900 handling material at 2.80 per pound 42000 14000 7840 63840 Depreciation and maintenance at 21 per MH 11550 3150 1260 15960 Performing quality at 13180 per inspection 4140 2760 4140 11040 packing at 0.30 per unit shipped 19500 6000 2400 27900 Total cost 128030 64650 54880 247560

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