Question

Several years after reengineering its production process, Kane Corporation hired a new controller, Christine Erickson. i (Click the icon to view additional information.) For the upcoming year, Kane's budgeted ABC manufacturing overhead allocation rates are as follows: BE: (Click the icon to view the additional data.)

Answer 1

1) Calculation of total budgeted manufacturing overhead cost for upcoming year is shown as follows:-

Kane Corporation

Total Budgeted Indirect Manufacturing Costs (Amounts in $)

Activity	Budgeted Quantity of Cost Allocation Base (A)	Activity Cost Allocation Rate (B)	Total Budgeted Indirect Cost (A*B)
Materials handling	14,000 parts [(6.0*1,000)+(8.0*1,000)]	$5.50 per part	77,000
Machine setups	40 setups (20+20)	$325 per setup	13,000
Insertion of parts	14,000 parts [(6.0*1,000)+(8.0*1,000)]	$24 per part	336,000
Finishing	4,000 hours [(1.0*1,000)+(3.0*1,000)]	$57 per hour	228,000
Total budgeted indirect cost			654,000

2) Calculation of manufacturing overhead cost per wheel (Amounts in $)

Kane Corporation
ABC Indirect Manufacturing Cost per Unit
Activity	Cost Allocation Rate (a)	Quantity of Cost Allocation Base Used By:		Allocated Activity Cost per Wheel
		Standard (b)	Deluxe (c)	Standard (a*b)	Deluxe (a*c)
Materials handling	$5.50 per part	6.0 part per wheel	8.0 part per wheel	33	44
Machine setup	$325 per setup	0.02 ($20/1,000 wheels)	0.02 ($20/1,000 wheels)	6.5	6.5
Insertion of parts	$24 per part	6.0 part per wheel	8.0 part per wheel	144	192
Finishing	$57 per hour	1.0 hr per wheel	3.0 hr per wheel	57	171
Total ABC Allocated indirect cost				240.5	413.5

Note:- Quantity of Machine setup base is given for 1,000 wheel, hence divided by 1,000 for calculating setup per wheel. (i.e. 20 setups for 1,000 wheels, 0.02 setup for 1 wheel).

3) Plant wide Overhead rate = Total Estimated indirect cost/Total Direct labor hours

Total Direct labor hours = (2.6 hrs*1,000 wheels of Standard)+(3.4 hrs*1,000 wheels of Deluxe)

= 2,600+3,400 = 6,000 labor hours

Plant wide Overhead rate = $654,000/6,000 labor hours = $109 per hour

Therefore, the plant wide overhead rate is $109 per direct labor hour.

Calculation of overhead cost per wheel   

	Direct Labor hour per wheel	X	Plant wide Overhead rate per DL	=	Manufacturing Overhead
Standard	2.6 DLHs	X	$109	=	$283.4 per wheel
Deluxe	3.4 DLHs	X	$109	=	$370.6 per wheel