Kitchen Supply, Inc. (KSI), manufactures three types of flatware: institutional,
ID: 2537660 • Letter: K
Question
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 Recommended Cost Driver Estimated Cost $ 42,000 171,000 325,000 231,000 70,950 125,000 $964,950 Estimated Cost Driver Activity 200 orders Activity Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing Total estimated cost Number of orders Number of production runs Pounds of materials used Machine-hours Number of inspections Number of units 90 runs 130,000 pounds 11,000 hours 55 inspections 500,000 units In addition, management estimated 7,300 direct labor-hours for year 2 Assume that the following cost driver volumes occurred in January, year 2Explanation / Answer
Answer:
A)
Activity
Rate
Explanation
Processing orders
210
42000/200
Setting up production
1900
171000/90
Handling materials
2.5
325000/130,000
Using machines
21
231000/11000
Performing quality control
1290
70950/55
Packing
0.25
125000/500,000
_________________________________
2
Pre-determined rate using labor-hours
= total overhead/total labor hours
= 964950/7300
= 132.18
________________________________________________
3
Institutional
Standard
Silver
Total
Direct materials
40,000
25,000
18,000
83,000
Direct labor
(direct labor hour x 15)
7050
6300
8700
22,050
Indirect costs
(direct labor hour x 132.18)
62124.6
55515.6
76664.4
194,305
Total cost
109,175
86,816
103,364
299,355
_______________________
4
Institutional
Standard
Silver
Total
Direct materials
40,000
25,000
18,000
83,000
Direct labor
7,050
6,300
8,700
22,050
Indirect costs
Processing orders
2520
2100
1260
5,880
Setting up production
3800
7600
11400
22,800
Handling materials
40000
17500
8500
66,000
Using machines
12390
2940
2100
17,430
Performing quality control
3870
2580
2580
9,030
Packing
14750
5250
2250
22,250
77330
37970
28090
143390
Total cost
124,380
69,270
54,790
248,440
Activity
Rate
Explanation
Processing orders
210
42000/200
Setting up production
1900
171000/90
Handling materials
2.5
325000/130,000
Using machines
21
231000/11000
Performing quality control
1290
70950/55
Packing
0.25
125000/500,000
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