Nichols Inc. manufactures remote controls. Currently the company uses a plantminus−wide rate for allocating manufacturing overhead....
Nichols Inc. manufactures remote controls. Currently the company uses a
plantminus−wide
rate for allocating manufacturing overhead. The plant manager is considering
switchingminus−over
to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
|
Activities |
Cost driver |
Allocation Rate |
|
Material handling |
Number of parts |
$2 per part |
|
Assembly |
Labor hours |
$20 per hour |
|
Inspection |
Time at inspection station |
$3 per minute |
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $200 per labor hour.
What are the indirect manufacturing costs per remote control assuming an
activityminus−basedminus−costing
method is used and a batch of 50 remote controls are produced? The batch requires 100 parts, 6 direct manufacturing labor hours, and 2.5 minutes of inspection time.
A.
$4.00 per remote control
B.
$327.50 per remote control
C.
$6.55 per remote control
D.
$24.00 per remote control
Homework Answers
| Material handling | 200 | =100*2 |
| Assembly | 120 | =6*20 |
| Inspection | 7.5 | =2.5*3 |
| Total indirect manufacturing costs | 327.5 | |
| Divide by Total remote controls | 50 | |
| Indirect manufacturing costs per remote control | 6.55 | |
| Option C $6.55 per remote control is correct |
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Nichols Inc. manufactures remote controls. Currently the company
uses a
plantminus−wide
rate for allocating manufacturing overhead....
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