Question

Frederick 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 EEB (Click the icon to view the budgeted costs and activity bases.) Frederick Company expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 2,750 parts, require 15 setups, and consume 1,700 hours of finishing time Job 420 used 150 parts, required 3 setups, and consumed 120 finishing hours Job 510 used 425 parts, required 4 setups, and consumed 310 finishing hours Read the requirements. Requirement 1. Compute the cost allocation rate for each activity. First identify the formula, then compute the rate for each activity Activity cost allocation rate Data Table Total Budgeted Manufacturing Overhead Cost Activity Materials handling Machine setup Insertion of parts Finishing Total Allocation Base $ 11,000 Number of parts 3,600 44,000 76,500 $ 135,100 Number of setups Number of parts Choose from any drop-down list and then click Check Answer 19,000ing direct labor hours parts remaining Clear All

Answer 1

Solution:

Activity cost allocation rate = Budgeted manufacturing overhead costs for activity / Quantity of allocation base

Computation of activity rate
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Materials handling	$11,000.00	Nos of parts	2750	$4.00
Machine setup	$3,600.00	Nos of setups	15	$240.00
Insertion of parts	$44,000.00	Nos of parts	2750	$16.00
Finishing	$76,500.00	Finishing direct labor hours	1700	$45.00
Total	$135,100.00