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Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows: Sandy Rocky River Beach Direct materials cost per unit Direct labor cost per unit Sales price per unt Expected production per month $18.60 5.00 83.20 1,170 units $ 27.80 19.00 106.00 960 units Keller has monthly overhead of $12,315, which is divided into the following cost pools Setup costs Quality control Maintenance S 3.150 5,535 630 s 12,315 Total The company has altso compiled the following information about the chosen cost drivers Sand BeachRocky RiverTotal Number of setups Number of inspections Number of machine hours 18 120 1,650 50 450 1,650 3,300 32 330
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5 Assigning overhead costs to products based on ABC Cost per Cost Pool Setup costs Quality control Maintenance Cost Cost Driver 3,150 Setups 5,535 Inspections 3,630 Machine hours Total activity 50 setups 450 inspections 3,300 machine hours cost driver 63.00 12.30 1.10 Overhead assigned Overhead assigned to Sandy Beach 1,134 to Rocky River 2,016 Setup Cost ($63 18) ($63 32) Quality control 1,476 ($12.30 120) 1,815 ($1.10*1,650) 4,059 ($12.30*330) 1,815 ($1.10 1,650) Maintenance Total overhead costs 4,425 7,890 6 Production cost per unit with an ABC system Sandy Beach $18.60 Direct materials Direct Labor Overhead Rocky River $ 27.80 19.00 8.22 15.00 3.78 (4,425/1,170) (7,890/960) Total Cost per unit 37.38 55.02 7 Gross margin per unit under ABC System Sandy Beach Rocky River Sales price per unit Total cost per unit 83.20 37.38 106.00 55.02 Gross margin 45.82 50.98 8 Gross margin per unit under traditinal system Sandy Beach Rocky River Sales price per unit 83.20 106.00 Less Direct materials Direct Labor Overhead 18.60 15.00 5.26 27.80 19.00 6.41

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