Question

Required information The following information applies to the questions displayed below.] Kitchen King's Toledo plant manufactures three product lines, all multi-burner, ceramic cook tops. The plant's three product models 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. The following table displays the basic data upon which the traditional costing system was based REG ADV GMT Planned annual production: Volume in units Production runs 5,000 40 runs of 125 units $129 4,000 40 runs of 100 units $151 1,000 20 runs of 50 units $203 Direct material Direct labor: Machine hours (MH) Total machine hours consumed (not including setup) per product unit by product line in a year $171 (9 hrs. $19 per hr.) 10 MH 50,000 (10 MH x 5,000) $209 (11 hrs. $19 per hr.) 12 MH 48,000 (12 MH x 4,000) $247 (13 hrs.@ $19 per hr.) 17 MH 17,000 (17 MH x 1,000)

Answer 1

1) The predetermined overhead rate is calculated as follows Predetermined overhead rate Budgeted manufacturing overhead/budgeted direct labour hours = $1224000/102 000"-$12 per hour Direct labour, budgeted hours REG: 5000 units *9 hours= 45 000 hours ADV: 4000 units *11 hours- 44 000 hours GMT: 1000 units13 hours 13 000 hours Total direct-labour hours 102,000 hours 2) Cost per unit of activity driver Activity driver quantity 115 000 100 300 100 1100 1100 650 115 000 Activity driver $310 500 Machine hours Activity level Activity Activity cost $2.70 525 250 850 25 60 50 Machine related Material hand Unit Batch Batch Batch Batch Batch Product Facility Purchasing Setup Inspection Shipping Engineering Facility 52 500 Production run 75 000 Purchase orders 85 000 Production runs 27 500 Inspection hours 66 000 Shipments 32 500 Engineering hours 575 000 Machine hours Total 24