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	$	20.00		$	27.70
Direct labor cost per unit		14.90			17.40
Sales price per unit		83.10			105.00
Expected production per month		1,200	units		980	units

      

Keller has monthly overhead of $11,245, which is divided into the following cost pools:

Setup costs	$	1,920
Quality control		6,077
Maintenance		3,248
Total	$	11,245

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

	Sandy Beach	Rocky River	Total
Number of setups	15	15	30
Number of inspections	110	405	515
Number of machine hours	1,450	1,450	2,900

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.)

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.)

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.)

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.)

Answer 1

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Hickory
Workings for Answer 1
Calculation of Plant wide OH Rate	Amount $
Manufacturing overhead	11,245.00	A
Machine Hours	2,900.00	B
Plant wide OH Rate	3.88	C=A/B
Answer 1	Sandy	Rocky	Note
Machine Hours	1,450.00	1,450.00	D
Predetermined OH Rate	3.88	3.88	See C
Overhead assigned	5,623.00	5,622.00	E=C*D
Workings for Answer 2	Sandy	Rocky
Overhead assigned	5,623.00	5,622.00	See E
Expected production per month	1,200.00	980.00	F
Overhead assigned per unit	4.69	5.74	G=E/F
Answer 2	Sandy	Rocky
Direct Materials	20.00	27.70
Direct Labor	14.90	17.40
Overhead assigned per unit	4.69	5.74	See G
Production cost per unit	39.59	50.84
Answer 3	Sandy	Rocky
Sell price per unit	83.10	105.00
Production cost per unit	39.59	50.84
Gross margin per unit	43.51	54.16

Answer 4
Calculation of ABC rates for overhead	H		I	J=H/I
Activity cost pool	Cost	Cost Driver	Activity usage	ABC rates
Setup costs	1,920.00	Number of setups	30.00	64.00
Quality control	6,077.00	Number of inspections	515.00	11.80
Maintenance	3,248.00	Number of Machine-hours	2,900.00	1.12
	11,245.00