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	$	19.60		$	27.30
Direct labor cost per unit		13.20			17.20
Sales price per unit		82.10			105.00
Expected production per month		1,250	units		950	units

      

Keller has monthly overhead of $12,203, which is divided into the following cost pools:

Setup costs	$	3,100
Quality control		5,487
Maintenance		3,616
Total	$	12,203

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

	Sandy Beach	Rocky River	Total
Number of setups	12	38	50
Number of inspections	170	295	465
Number of machine hours	1,600	1,600	3,200

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 Cost

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 Unit Cost

3. Calculate Keller’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

	Sandy Beach Rocky River Gross Margin

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system. (Round your answers to 2 decimal places.)

	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.)

	Overhead Assigned To Sandy Beach Overhead Assigned To Rocky River Setup Cost Quality Control Maintenance Total Overhead Cost

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.)

	Sandy Beach Rocky River Unit Cost

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.)

	Sandy Beach Rocky River Gross Margin

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

	Sandy Beach Rocky River Gross Margin (Traditional) Gross Margin (ABC)

Answer 1

I Problem 1. solution Machine hour Rate - Total overhead Total machine hours $ 12,203 3200 hrs = $ 3.8134375 turi & s Disha distribution I of overhead to each product line based on machine hour Pate Sandy beach model "- overhead = 6101.52 1 1600 has a $ 3.8134375 Rocky River model- overhead Z (loco hiss x $3.8134375) 61ol.5 $13,203 Total overhead assigned

Problem-2. solution / Calculation of Boduction Cost Per unit for each Product line Rocky particular I Beach River Production unit 1250 unit 950 unit direct material 24,500 25,935 Sandy a Direct labor |(1250x $19.6) 16,500 |(1250 x $13.2) 1 610105 (950 $27.3 16,340 Caso x 17.2) 60. 6101.5 - overhead - bos 47, lol.5 148,376.5 Total Production 2 Cost Round off Broduction Cost 47,102 48,377 Production Cost Per unit $37.68 $50.92 (8 47102 1250 unit ($ 48, 377 11 agonit

Problem - 3 solution Calculation of Gross Margin for lach Product under traditional esting system particulars Sandy Beach Rocky River sales Revenue 102,625 99,750 1 (12sounit x $822 (950 unit X 1 - $105) u7102 48, 377 Les Roduction cost Gross margin 55523 51,373 $54.08 Cggin244-42 Per unit ($ 55,523 1250 unit) $ 51, 373 (958 t't) AS

Problem - 4 Solution | Cest Pool set-up lost Appropriate Cost osiver No. of set-up Onality Control No. of Inspection maintenance Machine hours

Activity Pates for each Cost poole set-up lost c$3100 1 = $62/ No. of set up $ 50 ouality Control = $11.8 No. of $ 5487 Inspections . 465 2 = $1.13 machine hrs Maintenace Cost $ 36161 3200 hrs

Boblem - 5 Cost Pool solution) overhead Assignd to Sandy Beach overhead assigned to Rocky River Set-up Cest $744 (12X $62) $ 2,356 (38%$62) Quality $3481 Control $ 2006 (170 x $11.8) 4 (295X $11.8) maintenance I Cost $ 1,808 $ 1,808 (1690hos x $ 1-13) 116coliss x $ 1.13) Total overhead ost $ 4,558 $ 7,645

ooblem-6 solution Production for each Cost Bodhet o Calculation of per unit | Sandy -Beach Rocky farticular River production ungit 1250 950. & 24,500 25, 935 Direct Direct material labor 16,500 16,340 overhead @ under a assigned ABC system 7sus Total 45,558 Fuq, azo Production ost Production Cost I 636.45 $ 52.55 per unit T$ 45,558 1 $ 49,920 TL 1250 whit) al arounit)

Problem-7 solution) Calculation of A under Gross ABC margin system Rocky River particular Sandy Beach Sales revenue $ 102,625 $ 99,750 Less Production $ 45, 558 h $ 49,920 Cost Gross margin / $ 57,067 1 $ 49,830 in $45.66 $52.45 Gross margin Per unit T($57,067 ($49,8307 1250 unit 950 unit Problem -s solution) Comparison of Gross margin Per unit Particulars Sandy Beach Rocky River 44.42 $ 54.08 Gross margin (Traditional Gross Margin (ABC System) I $ 45.66 L $52.95