In: Accounting
East Horizon uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows:
Total Budgeted |
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Manufacturing |
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Activity |
Overhead Cost |
Allocation Base |
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Materials handling. . . . |
$8,700 |
Number of parts |
||
Machine setup. . . . . . . |
4,650 |
Number of setups |
||
Insertion of parts. . . . . |
49,300 |
Number of parts |
||
Finishing. . . . . . . . . . . . |
75,600 |
Finishing direct labor hours |
||
Total. . . . . . . . . . . . . |
$138,250 |
East horizon expects to produce 1,000 chrome wheels during the year.
The wheels are expected to use 2,900 parts, require 15 setups, and consume 1,800 hours of finishing time.
Job 420 used 100 parts, required 3 setups, and consumed 130 finishing hours .
Job 510 used 450 parts, required 4 setups, and consumed 300 finishing hours.
1. |
Compute the cost allocation rate for each activity. |
2. |
Compute the manufacturing overhead cost that should be assigned to Job 420. |
3. |
Compute the manufacturing overhead cost that should be assigned to Job 510. |
1. Computation of cost allocation rate
Activity | Overhead cost($) | Allocation Base | allocation rate |
Materials handling | 8,700 | No. of parts (2,900) | 3 per part (8,700 / 2,900) |
Machine setup | 4,650 | No. of setups (15) | 310 per setup |
Insertion of parts | 49,300 | No. of parts (2,900) | 17 per part |
Finishing | 75,600 | Finishing labour hours (1,800) | 42 per labour hours |
2. Computation of manufacturing overhead costs for Job 420
Activity | Allocation rate | Times | Cost allocation($) |
Materials handling | 3 per part | 100 parts | 300 (3*100) |
Machine setup | 310 per setup | 3 setup | 930 |
Insertion of parts | 17 per part | 100 parts | 1,700 |
Finishing | 42 per labour hours | 130 labour hours | 5,460 |
Total Manufacturing overhead costs for Job 420 | 8,390 |
2. Computation of manufacturing overhead costs for Job 510
Activity | Allocation rate | Times | Cost allocation($) |
Materials handling | 3 per part | 450 parts | 1350 (3*450) |
Machine setup | 310 per setup | 4 setup | 1,240 |
Insertion of parts | 17 per part | 450 parts | 7,650 |
Finishing | 42 per labour hours | 300 labour hours | 12,600 |
Total Manufacturing overhead costs for Job 510 | 22,840 |