Question

Pre-Built Problems Keller Company makes two models of battery operated boats, the Sandy Beach and the Rocky River Basic production information follows: Sandy Beach $19.60 HI 14.00 Rocky Riven 27.20 16. Direct materials cost per unit Direct labor cost per unit Sales price per unit Expected production per month 920 units Keller has monthly overhead of 511,632, which is divided into the following cost pools Quality control Maintenance Total The company has also compiled the following information about the chosen cost drivers Number of setups umber of inspections Number of machine hours 1,650 3,300 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 amount.) Overhead Assigned Sandy Beach Model Rocky River Model Total Overhead Costs

Answer 1

Solution:

Part 1: Amount of overheads assigned to eah product line
	Sandy beach	Rock River	Total
Machine hours	1,650	1,650	3,300
Total overheads			11,632
Overheads assigned	11,632 x (1,650/3,300) = 5816	11,632 x (1,650/3,300) = 5816	11,632
					5816

Part 2: Production cost per unit under traditional costing method
	Sandy beach	Rock River
Direct Materials	19.60 x 1,200 = 23520	27.20 x 920 = 25024
Direct labor	14.00 x 1200 = 16800	18.6 x 920 = 17112
Overheads	5,816	5,816
Total (A)	46,136	47,952
Units Produced (B)	1,200	920
Cost per unit (A/B)	38.45	52.12
Part 3: Calculatio of Gross margin per unit
	Sandy Beach	Rock River
Sales price per unit	82.8	106
Cost per unit	38.45	52.12
Gross margin per unit	44.35	53.88

Part 4: Allocation of cost driver & Calculation of activity rates under ABC Costing
	Total cost (A)	Cost Drivers	Total (B)	Rate (A/B)
Setups costs	2,030	Numbers of setups	35	58
Inspections	5,674	Number of inspections	485	11.70
Maintenance	3,927	Number of machine hours	3300	1.19