Question

Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows: Rocky River $ 27.10 Sandy Beach Direct materials cost per unit $19.30 Direct labor cost per unit 13.30 Sales price per unit 83.90 Expected production per month 1, 240 units 18.60 105.00 9 10 units Keller has monthly overhead of $11,466, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 1,920 6,212 3, 335 $ 11,466 The company has also compiled the following information about the chosen cost drivers: 30 Number of setups Number of inspections Number of machine hours Sandy Beach 12 140 1,450 Rocky River Total 18 365505 1,450 2,900

Answer 1

1)

Overhead rate =Estimated overhead /estimated machine hours

                   = 11466/2900

                    = $ 3.953793 per machine hour

Sandy Beach	1450*3.953793 = $ 5733
Rocky River	1450*3.953793= $ 5733
Total overhead assigned	11466

2)

	Sandy Beach	Rocky River
Direct material	19.30	27.1
Direct labor	13.3	18.6
overhead assigned	5733/1240= 4.62	5733/910= 6.3
Total unit cost	37.22	52

3)

	Sandy Beach	Rocky River
sales price	83.9	105
Less: Total unit cost	37.22	52
Gross margin	46.68	53

4)

	Activity driver	Activity rates
set Up cost	Number of setups	1920/30= $ 64 per set up
Quality control	Number of inspections	6212/505 = $ 12.30 per inspection
Maintenance	Number of machine hours	3335/2900 = $ 1.15 per machine hours

**Activity rate = Estimated activity cost /estimated activity driver