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. 3.35 points Recommended Cost Driver Number of orders Number of production runs Pounds of materials used Estimated Cost $ 48,375 153,000 364,000 Estimated cost Driver Activity 225 orders 90 runs 130,000 pounds eBook Activity Processing orders Setting up production Handling materials Machine depreciation and maintenance Performing quality control Packing Total estimated cost Machine-hours Number of inspections Number of units 264,000 55,200 115,000 $999,575 12,000 hours 40 inspections 460,000 units Print References In addition, management estimated 7,500 direct labor-hours for year 2. Assume that the following cost driver volumes occurred in January, year 2. Institutional 60,000 $37,000 420 13 Standard 21,000 $ 26,000 490 Silver 9,000 $17,000 650 11 Number of units produced Direct materials costs Direct labor-hours Number of orders Number of production runs Pounds of material Machine-hours Number of inspections Units shipped 16,000 2,800 580 100 5,000 140 3 21,000 60,000 9,000 Actual labor costs were $15 per hour.

Answer 1

a)				Estimated	Driver	rate
1)				cost (a)	(b)	c=a/b
	processing orders			48,375	225	215	per order
	Setting up production			153,000	90	1700	per run
	handling materials			364,000	130,000	2.8	per pound
	using machines			264,000	12,000	22	per mh
	performing quality control			55,200	40	1380	per inspection
	packing			115,000	460,000	0.25	per unit
	Estimated activity				999,575
	estimated allocation base				7,500
	predetermined rate for direct labor				133.2767
	production cost using direct labor hours
			institutional	standard	Silver	total
b)	Account
	Direct materials		37000	26000	17000	80000
	direct labor		6300	7350	9750	23400
	indirect costs		59975	59975	79966	199915
	total cost		103275	93325	106716	303315
		direct labor = DLH*$15 per hour
		indirect cost = dLH*$133.2767
c)			institutional	standard	Silver	total
	Account
	Direct materials		37000	26000	17000	80000
	direct labor		6300	7350	9750	23400
	Indirect costs
	processing orders		2795	2365	1290	6450
	Setting up production		6800	6,800	8500	22100
	handling materials		44800	14000	7840	66640
	using machines		12760	3080	2200	18040
	performing quality control		5520	4,140	2760	12420
	packing		15000	5250	2250	22500
	total cost		130975	68985	51590	251550