Mike inc, uses activity-based costing to account for its chrome bumper manufactu
ID: 2411942 • Letter: M
Question
Mike inc, uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities: materials handling, machine setup, insertion ofparts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows: Table data Activity Materials handling Machine setup Insertion of parts Finishing Total Total Budgeted Cost Allocation Base $4,000 4,800 Number of parts Number of setups 52,000 78,000 $138,800 Number of parts Finishing direct labor hours Mike expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 55 setups, and consume 1,000 hours of finishing time.Explanation / Answer
1) Estimated Overhead costs / Quantity of Activity driver = Predetermined OH allocation rate Material handling $ 4,000 / 4,000 Parts = $ 1.00 per part Machine Setup $ 4,800 / 44 Setups = $ 109.09 per setup Insertion of Parts $ 52,000 / 4,000 Parts = $ 13.00 per part Finishing $ 78,000 / 1,000 hours = $ 78.00 per hour 2) Quantity of activity driver x Predetermined OH = Allocated mfg.overhead costs allocation rate 4,000 Parts x $ 1.00 per part = $ 4,000 44 Setups x $ 109.09 per setup = $ 4,800 4,000 Parts x $ 13.00 per part = $ 52,000 1,000 hours x $ 78.00 per hour = $ 78,000 Allocated Mfg.OH Cost Material Handlng $ 4,000 Machine Setups $ 4,800 Insertion of Parts $ 52,000 Finishing $ 78,000 Total mfg. OH costs $ 1,38,800 Number of bumpers 500 Mfg.OH cost per bumper $ 277.60