Question

Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows:

	Sandy Beach			Rocky River
Direct materials cost per unit	$	19.30		$	26.60
Direct labor cost per unit		14.80			19.10
Sales price per unit		83.40			105.00
Expected production per month		1,200	units		910	units

      

Keller has monthly overhead of $11,104, which is divided into the following cost pools:

Setup costs	$	2,400
Quality control		5,766
Maintenance		2,938
Total	$	11,104

The company has also compiled the following information about the chosen cost drivers:

	Sandy Beach	Rocky River	Total
Number of setups	11	29	40
Number of inspections	180	285	465
Number of machine hours	1,300	1,300	2,600

Required:
1. Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amounmt

Answer is

Sandy Beach = 5552

Rockey River-5552

Total -11104

Please help with questions 2-8 if possible explain

2. Calculate the production cost per unit for each of Keller’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)
Sandy beach

rocky River

3. Calculate Keller’s gross margin per unit for each product under the traditional costing system

Sandy beach

Rocky River

	Setup Costs Quality Control Maintenance

5. Assuming an ABC system, assign overhead costs to each product based on activity demands.(Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

Over head assigned to Sandy beach.....Overhead to Rocky River

Setup cost

quaility control

Maitnence

Total

6. Calculate the production cost per unit for each of Keller’s products with an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

7. Calculate Keller’s gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

8. Compare the gross margin per unit of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

Answer 1

Answer is given below with all working notes

Traditional Overhead rate- Machine hour based Total Overheads $11,104 Total machine hours 2,600 $4.27 Per machine hour Rocky River 1,300 Machine hours Machine hour rate Total Overhead allocated Total output Overhead cost per unit Sandy Beach 1,300 $4.27 $5,552 1,200 $4.63 $4.27 $5,552 A 910 B $6.10 A/B Total manufacturing cost per unit- Traditional Costing Sandy Beach Rocky River Direct Material $19.30 $26.60 Direct Labor $14.80 $19.10 Total Overhead allocated $4.63 $6.10 Total manufacturing cost per unit) $38.73 $51.80 Gross Margin-Traditional method Selling price Manufacturing cost Gross Margin per unit Sandy Beach $83.40 $38.73 $44.67 Rocky River $105.00 $51.80 $53.20 Calculation of Activity rates Activity Total Activities Activity rate Total Overheads $2,400 $5,766 $2,938 $11,104 Setup Costs Quality Control Maintenance Total budgeted indirect costs 465 $60.00 Per set up $12.40 Per inspection $1.13 Per machine hour 2,600 5 Allocation of Overheads - ABC method Cost activity rate Activities used Allocated Cost Activity Sandy Beach Rocky River 11 29 180 285 1,300 1,300 Manufacturing set ups $60.00 Machine processing $12.40 Purchase orders $1.13 Total ABC allocated indirect cost Total Volume Overhead cost per unit Sandy Beach $660 $2,232 $1,469 $4,361 1,200 $3.63 Rocky River $1,740 $3,534 $1,469 $6,743 A 910 B $7.41 A/B Total manufacturing cost per unit- ABC method Sandy Beach Direct Material $19.30 Direct Labor $14.80 Total Overhead allocated $3.63 Total manufacturing cost per unit $37.73 Rocky River $26.60 $19.10 $7.41 As per above working $53.11 Gross Margin- ABC method Selling price Manufacturing cost Gross Margin per unit Sandy Beach $83.40 $37.73 $45.67 Rocky River $105.00 $53.11 $51.89 Comparison of GM Traditional method ABC method Sandy Beach $44.67 $45.67 Rocky River $53.20 $51.89 Allocation of overhead as per machine hour method does not correlate the cost with activities consumed ABC method should be used because -It helps in accurate product costing - It helps in Product pricing - It helps in better cost management through cost control and cost reduction