Question
In: Accounting
Empire Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018 :...
Empire Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018 :
Predetermined Overhead
Activity
Allocation Base
Allocation Rate
Materials handling
Number of parts
$7.00
per part
Machine setup
Number of setups
700.00
per setup
Insertion of parts
Number of parts
23.00
per part
Finishing
Number of finishing hours
60.00
per hour
Empire produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:
Standard
Deluxe
Parts per rim
2.0
4.0
Setups per 500 rims
15.0
15.0
Finishing hours per rim
2.0
4.5
Total direct labor hours per rim
4.0
5.0
The company expects to produce 500 units of each model during the year.
|
1.
|
Compute
the total estimated indirect manufacturing cost for
20182018.
|
|
2.
|
Prior
to
20182018?,
EmpireEmpire
used
a single plantwide overhead allocation rate system with direct
labor hours as the allocation base. Compute the predetermined
overhead allocation rate based on direct labor hours for
20182018.
Use
this rate to determine the estimated indirect manufacturing cost
per wheel rim for each?model, to the nearest
cent. |
|
3.
|
Compute
the estimated ABC indirect manufacturing cost per unit of each
model for
20182018.
Carry each cost to the nearest cent.
Compute
the total estimated indirect manufacturing cost for
20182018.
Begin
by selecting the formula to compute the total estimated
overhead? (OH)
costs.
|
Solutions
Expert Solution
| Working Note: | ||||||||||
| Standard | Deluxe | Total | ||||||||
| Number of parts | 1000 | 2000 | 3000 | |||||||
| Number of set ups | 15 | 15 | 30 | |||||||
| Finishing hours | 1000 | 2250 | 3250 | |||||||
| Direct labour hour | 2000 | 2500 | 4500 | |||||||
| 1. The total estimated indirect manufacturing cost for 2018 | ||||||||||
| Begin by selecting the formula to compute the total estimated overhead costs | ||||||||||
| Total estimated quantity of the allocation base x Predetermined overhead allocation rate = Total estimated overhead costs | ||||||||||
| Activity | Total estimated indirect manufacturing cost | |||||||||
| Material handling | $21,000 | |||||||||
| Machine set up | $21,000 | |||||||||
| Insertion of parts | $69,000 | |||||||||
| Finishing | $195,000 | |||||||||
| Total | $306,000 | |||||||||
| 2. Predetermined overhead allocation rate based on direct labour hours | ||||||||||
| Total indirect manufacturing cost = $386750 | ||||||||||
| Total direct labour hour = 4500 | ||||||||||
| Overhead allocation rate = $386750/4500 hours = $85.95 per hour | ||||||||||
| The estimated indirect manufacturing cost per wheel rim for each model | ||||||||||
| Standard | Deluxe | |||||||||
| Direct labour hour per rim | 4 | 5 | ||||||||
| Overhead allocation rate | $85.95 per hour | |||||||||
| Estimated indirect manufacturing cost per rim | $343.80 | $429.75 | ||||||||
| 3. The estimated ABC Indirect manufacturing cost per unit of each model for 2018 | ||||||||||
| Activity | Standard | Deluxe | ||||||||
| Material handling | 14 | 28 | ||||||||
| Machine set up | 21 | 21 | ||||||||
| Insertion of parts | 46 | 92 | ||||||||
| Finishing | 120 | 270 | ||||||||
| Total | 201 | 411 | ||||||||
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