Question

PA4-4 (Algo) Selecting Cost Drivers, Assigning Costs Using Activity Rates [LO 4-1,4-3, 4-4, 4-6) 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 $18.90 $ 27.00 unit Direct labor cost per unit 14.60 17.90 Sales price per unit 82.40 106.00 Expected production per month 1, 230 units 980 units Keller has monthly overhead of $12,306, which is divided into the following cost pools: Setup costs Quality control Maintenance Total $ 3,150 6,206 2,950 $ 12,306 The company has also compiled the following information about the chosen cost drivers: Number of setups Number of inspections Number of machine hours Sandy Beach Rocky River 15 35 150 385 1,250 1,250 Total 50 535 2,500 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 $ 0 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

Answer 1

1)

Overhead rates using thetraditional costing method = budgeted overhead costs/Machine hours

Overhead rates using the traditional costing method = 12306 / 2500
Overhead rates using the traditional costing method = $ 4.9224

Amount of overhead assigned to Sandy beach = 4.9224 * 1250 = $ 6153

Amount of overhead assigned to Rocky River = 4.9224 * 1250 = $ 6153

2)

	Sandy Beach	Rocky River
Direct Material	18.90	27.00
Direct Labor	14.60	17.90
Overhead Cost [ 6153 / 1230 & 6153 / 980]	5.00	6.28
Production cost per unit	38.50	51.18

3)

Sandy beach

Gross Margin = Sale Price - Production cost per unit

Gross Margin = 82.40 - 38.50 = 43.90

Rocky River

Gross Margin = Sale Price - Production cost per unit

Gross Margin = 106 - 51.18 = 54.82

4)

Activity Cost Pool	Estimated Overhead	Expected Use of Cost Drivers per Activity	Activity Rate
	[b]	[c]	[b/c]
Setup costs	3150	50	63.00	per setup
Quality control	6206	535	11.60	per inspection
Maintenance	2950	2500	1.18	per MHR