Question

In: Accounting

fuller company uses abc to account for its chrome wheel manufacturing process

Fuller Company 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: Manufacturing Overhead Cost Activity Materials handling Machine setup Insertion of parts Finishing Total Allocation Base $12,000 Number of parts 3,400 Number of setups 48,000 Number of parts 80,000 Finishing direct labor $143,400

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Expert Solution

Requirement 1: Compute cost allocation rate for each activity

Formula:    \( \frac{\texttt{Manufacturing overheads}}{\texttt{Allocation base}} \)

 

 
  Manufacturing Overheads Allocation Base Activity Cost Allocation Rate
Material handling $12,000 3000 parts $4 per part
Machine Setups $3,400 10 setups $340 per setup
Insertion of Parts $48,000 3000 parts $16 per part
Finishing $80,000 2000 direct labor hours $40 per hour
Total $143,400.00        

 

 

 

 

 

 

 

Requirement 2: 

Formula:\( {\texttt{Activity cost allocation rate}}\times {\texttt{Allocation base}} \)

Requirement 2: Compute manufacturing overhead cost for the JOB 420
Activity Activity Cost Allocation Rate Allocation base MOH Assigned
Material handling $4 per part 200 Parts $800
Machine Setups $340 per setup 2 Setups $680
Insertion of Parts $16 per part 200 Parts $3,200
Finishing $40 per hour 130 direct labor hours $5,200

Total

$9,880

 

Requirement 3:

Formula:\( {\texttt{Activity cost allocation rate}}\times {\texttt{Allocation base}} \)

 

Compute manufacturing overhead cost for the JOB 510

  Activity Cost Allocation Rate Allocation base MOH Assigned
Material handling $4 per part 425 Parts $1,700
Machine Setups $340 per setup 4 Setups $1,360
Insertion of Parts $16 per part 425 Parts $6,800
Finishing $40 per hour 350 direct labor hours $14,000
Total $23,860

1. Cost allocation rate for each activity is calculated.

2. Manufacturing overhead cost assigned to the JOB 420 is $9880

3. Manufacturing overhead cost assigned to the JOB 420 is $23860

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