Solution
Zeke Corporation
Zeke Corporation |
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Total Budgeted Indirect Manufacturing Cost |
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Activity |
Budgeted Quantity of Cost Allocation Base |
Activity Cost Allocation Rate |
Total Budgeted Indirect Cost |
Materials Handling |
10,000 parts |
$4.50 per part |
$45,000 |
Machine Setup |
40 setups |
$325 per setup |
$13,000 |
Insertion of parts |
10,000 parts |
$31 per part |
$310,000 |
Finishing |
4,000 DLH |
$51 per hour |
$204,000 |
Total Budgeted Indirect Manufacturing Cost |
$572,000 |
Number of parts –
Standard wheel = 4 parts per wheel, for 1,000 wheels = 4,000
Deluxe wheel = 6 parts per wheel for 1,000 = 6,000
Total = 10,000 parts
Number of setups –
Setups for 1,000 wheels = standard 20 + Deluxe 20 = 40
Finishing direct labor hours –
Standard = 1 x 1,000 = 1,000
Deluxe = 3 x 1,000 = 3,000
Total finishing direct labor hours = 4,000
Standard |
Deluxe |
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Manufacturing overhead cost per wheel |
$199.50 |
$372.50 |
Computations:
Standard Wheel |
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Activity |
Activity Rate |
Activity Usage |
Activity Cost |
Materials handling |
$4.50 per part |
4,000 parts |
$18,000 |
Machine Setup |
$325 per setup |
20 setups |
$6,500 |
Insertion of parts |
$31 per part |
4,000 parts |
$124,000 |
Finishing |
$51 per hour |
1,000 hours |
$51,000 |
Total indirect cost |
$199,500 |
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number of wheels |
1,000 |
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overhead cost per standard wheel |
$199.50 |
Deluxe Wheel |
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Activity |
Activity Rate |
Activity Usage |
Activity Cost |
Materials handling |
$4.50 per part |
6,000 parts |
$27,000 |
Machine Setup |
$325 per setup |
20 setups |
$6,500 |
Insertion of parts |
$31 per part |
6,000 parts |
$186,000 |
Finishing |
$51 per hour |
3,000 hours |
$153,000 |
Total indirect cost |
$372,500 |
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number of wheels |
1,000 |
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overhead cost per deluxe wheel |
$372.50 |
Feasible allocation base – number of parts
Plantwide overhead rate = total indirect cost/number of parts
= $572,000/10,000 parts
Plantwide overhead rate = $57.20 per part
Allocation of manufacturing overhead cost to Standard Wheel = 4,000 parts x $57.20 = $288,800
Allocation of manufacturing overhead cost to Deluxe Wheel = 6,000 parts x $57.20 = $343,200
Traditional allocation basis, manufacturing overhead cost per standard wheel –
= $288,800/1,000 = $288.80
Traditional allocation basis, manufacturing overhead cost per Deluxe wheel –
= $343,200/1,000 = $343.20
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