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 $ 19.00 $ 26.20
Direct labor cost per unit 13.70 17.80
Sales price per unit 82.90 105.00
Expected production per month 1,170 units 930 units
Keller has monthly overhead of $11,482, which is divided into the following cost pools:
Setup costs $ 2,880
Quality control 5,440
Maintenance 3,161
Total $ 11,482
The company has also compiled the following information about the chosen cost drivers:
Sandy Beach Rocky River Total
Number of setups 13 32 45
Number of inspections 110 355 465
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.
2. Calculate the production cost per unit for each of Keller's products under a traditional costing system.
3. Calculate Keller's gross margin per unit for each product under the traditional costing system.
4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system.
5. Assuming an ABC system, assign overhead costs to each product based on activity demands.
6. Calculate the production cost per unit for each of Keller's products with an ABC system.
7. Calculate Keller's gross margin per unit for each product under an ABC system.
8. Compare the gross margin of each product under the traditional system and ABC.