In: Accounting
She developed an ABC system very similar to the one used by
Kane's
chief rival. Part of the reason Johnson developed the ABC system
was because Kane's
profits had been declining even though the company had shifted its
product mix toward the product that had appeared most profitable
under the old system. Before adopting the new ABC system, the
company had used a plantwide overhead rate based on direct labor
hours that was developed years ago.
Standard |
Deluxe |
|
Parts per wheel. . . . . . . . . . . . . . . . . . . . |
4.0 |
6.0 |
Setups per 1,000 wheels. . . . . . . . . . . . . . . |
20.0 |
20.0 |
Finishing direct labor hours per wheel. . . . . |
1.0 |
3.0 |
Total direct labor hours per wheel. . . . . . . . |
2.7 |
3.8 |
The company's managers expect to produce 1,000 units of each model during the year.
Activity Cost:
Activity.... Allocation Base........ Allocation Rate
Materials handling. . . .Number of parts.... $4.50 per part
Machine setup. . . . . . .Number of setups.... $325.00 per setup
Insertion of parts. . . . .Number of parts.......$31.00 per part
Finishing. . . . . . . . . . . .Finishing direct labor hours....$51.00 per hour
Requirement 1. Compute the total budgeted manufacturing overhead cost for the upcoming year. (Enter the rates to two decimal places.)
Kane Corporation |
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Total Budgeted Indirect Manufacturing Costs |
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Budgeted Quantity of |
Activity Cost |
Total Budgeted |
|
Activity |
Cost Allocation Base |
Allocation Rate |
Indirect Cost |
Materials handling |
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Machine setups |
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Insertion of parts |
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Finishing |
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Total budgeted indirect cost |
Requirement 2. Compute the manufacturing overhead cost per wheel of each model using ABC. (Round the cost allocation base to three decimals and cost per wheel to the nearest cent.)
Kane Corporation |
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ABC Indirect Manufacturing Cost per Unit |
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Cost |
Quantity of Cost Allocation |
Allocated Activity |
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Activity |
Allocation Rate |
Base Used By: |
Cost Per Wheel |
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Standard |
Deluxe |
Standard |
Deluxe |
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Materials handling |
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Machine setup |
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Insertion of parts |
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Finishing |
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Total ABC allocated indirect cost |
Requirement 3. Compute the company's traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system.
Begin by identifying the formula to compute the current plantwide manufacturing overhead rate, then compute the rate. (Round your answer to the nearest cent.)
/ |
= |
Plantwide overhead rate |
/ |
= |
per DL hour |
Now use the plantwide overhead rate to determine the manufacturing overhead cost per wheel. (Round your answers to the nearest cent.)
x |
= |
Manufacturing overhead |
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Standard |
x |
= |
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Deluxe |
x |
= |