Several years after reengineering its production process, Biltmore Corporation hired a new controller, Georgia Taylor. She developed an ABC system very similar to the one used by Biltmore's chief rival. Part of the reason Taylor developed the ABC system was because Biltmore's profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, the company had used a plantwide overhead rate based on direct labor hours that was developed years ago.
For the upcoming year, Biltmore's budgeted ABC manufacturing overhead allocation rates are as follows:
Activity | Allocation Base | Activity Cost Allocation Rate |
Materials Handling | Number of parts | $4.00 per part |
Machine Setup | Number of setups | $450.00 per setup |
Insertion of parts | Number of parts | $26.00 per part |
Finishing | Finishing direct labor hours | $50.00 per hour |
The number of parts is now a feasible allocation base because Biltmore recently installed a plantwide computer system. Biltmore produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows:
Standard | Deluxe | |
Parts per wheel | 4.0 | 6.0 |
Setups per 1,000 wheels | 20.0 | 20.0 |
Finishing direct labor hours per wheel | 1.1 | 2.4 |
Total direct labor hours per wheel | 2.6 | 3.2 |
The company's managers expect to produce 1,000 units of each model during the year.
1. |
Compute the total budgeted manufacturing overhead cost for the upcoming year. Enter rate to two decimal places. |
2. |
Compute the manufacturing overhead cost per wheel of each model using ABC. |
3. |
Compute the company's traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system. |
1.Total budgeted manufacturing overhead cost for the upcoming year:
Activity | allocation base | Budgeted quantity of cost allocation base | allocation rate | Budgeted indirect cost |
Materials handling | Number of parts | (4*1000) +(6*1000) = 10,000 | $4 | $40,000 |
Machine setups | Number of setups | (20) +(20) =>40 | $450 | $18,000 |
Insertion of parts | Number of parts | (4*1000) +(6*1000) =>10,000 | $26 | $260,000 |
Finishing | Finishing direct labor hours | (1.1*1000) +(2.4*1000)=>3500 | $50 | $175,000 |
total budgeted indirect cost | $493,000 |
Requirement 2:
manufacturing overhead cost per wheel of each model:
Activity | cost allocation rate | quantity of cost allocation base used | Allocated activity cost per wheel | ||
Standard | Deluxe | standard | Deluxe | ||
Materials handling | $4 per part | 4 | 6 | $16 | $24 |
Machine setup | $450 per set up | (20 setups /1000)=0.02 | (20 setups/1000)=0.02 | $9 | $9 |
Insertion of parts | $26 per part | 4 | 6 | $104 | $156 |
Finishing | $50 per hour | 1.1 | 2.4 | $55 | $120 |
Total ABC allocated indirect cost | $184 | $309 |
3. Traditional plant-wide overhead rate:
total direct labour hours = (2.6*1000) +(3.2*1000) =>5800 hours
(total overhead ) /(total labor hours) = Plantwide overhead rate
($493,000) /(5800 hours) =>$85.per direct labor hour
NOw, manufacturing overhead cost per wheel using a plant-wide overhead rate:
..................................Direct labor hours * .................plant-wide rate.=.. manufacturing overhead:
Standard | 2.6....................X | $85 | $221 |
Deluxe | 3.2....................X | $85 | $272 |
Several years after reengineering its production process, Biltmore Corporation hired a new controller, Georgia Taylor. She...
Several years after reengineering its production process, Biltmore Corporation hired a new controller, Tammy English. For the upcoming year, Biltmore's budgeted ABC manufacturing overhead allocation rates are as follows: The number of parts is now a feasible allocation base because Biltmore recently installed a plantwide computer system. Biltmore produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows: Requirement 1. Compute the total budgeted manufacturing overhead cost for the upcoming year. Requirement 2....
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