Question

In: Accounting

East Horizon uses ABC to account for its chrome wheel manufacturing process. Company managers have identified...

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

Manufacturing

Activity

Overhead Cost

Allocation Base

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.

Solutions

Expert Solution

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

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