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	$	18.60		$	27.50
Direct labor cost per unit		13.70			17.40
Sales price per unit		82.90			106.00
Expected production per month		1,190	units		950	units

      

Keller has monthly overhead of $10,903, which is divided into the following cost pools:

Setup costs	$	2,065
Quality control		5,625
Maintenance		3,213
Total	$	10,903

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

	Sand Beach	Rocky River	Total
Number of setups	16	19	35
Number of inspections	170	280	450
Number of machine hours	1,350	1,350	2,700

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.)

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

Answer 1

5)

Allocating OH
Particulars		Sandy Beach	Workings	Rocky River	Workings
Setup Costs		$            944	($ 59 x 16)	$       1,121	($ 59 x 19)
Quality Control		$         2,125	($ 12.50 x 170)	$       3,500	($ 12.50 x 280)
Maintenance		$         1,607	($ 1.19 x 1350)	$       1,607	($ 1.19 x 1350)
		$         4,676		$       6,228
No. of units		1190		950
OH cost per unit		$           3.93		$         6.56

Workings:

Activities	Costs	Drivers	Volume	Rate
Setup Costs	$   2,065.00	No. of setups	35	$   59.00
Quality Control	$   5,625.00	No. of inspection	450	$   12.50
Maintenance	$   3,213.00	No. of machine hours	2700	$      1.19
	$ 10,903.00

6)
Particulars		Sandy Beach		Rocky River
Direct Material		$   18.60		$   27.50
Direct Labor		$   13.70		$   17.40
OH cost		$      3.93		$      6.56
Prod. Cost per unit		$   36.23		$   51.46

7)
Particulars		Sandy Beach		Rocky River
Sales price per unit		$   82.90		$ 106.00
Prod. Cost per unit		$   36.23		$   51.46
Gross Margin		$   46.67		$   54.54

8) No information regarding the base of traditional absorption costing system has been provided, so it can't be done.