Reference no: EM133039347

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	$19.50	$26.80
Direct labor cost per unit	13.80	17.80
Sales price per unit	82.50	105.00
Expected production per month	1,160 units	900 units

Keller has monthly overhead of $11,188, which is divided into the following cost pools:

Setup costs	$2,610
Quality control	5,952
Maintenance	2,626
Total	$11,188

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

	Sandy Beach	Rocky River	Total
Number of setups	14	31	45
Number of inspections	200	280	480
Number of machine hours	1,300	1,300	2,600

Required -

Q1. Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line.

Q2. Calculate the production cost per unit for each of Keller's products under a traditional costing system.

Q3. Calculate Keller's gross margin per unit for each product under the traditional costing system.

Q4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system.

Q5. Assuming an ABC system, assign overhead costs to each product based on activity demands.

Q6. Calculate the production cost per unit for each of Keller's products with an ABC system.

Q7. Calculate Keller's gross margin per unit for each product under an ABC system.

Q8. Compare the gross margin per unit of each product under the traditional system and ABC.