Activity-based costing Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing overhead application rate based on direct labor hours. Currently, overhead is applied at the rate of $26/DLH. Brooklyn is now considering using activity-based driver rates to improve manufacturing overhead costing accu- racy. Budgeted manufacturing overhead costs for expected driver activity are:
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Machining time ...................
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Budgeted Cost
$250,000
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Budgeted Activity
10,000 hours
|
|
Direct labor time .................
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$280,000
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20,000 hours
|
|
Inspection time ...................
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$ 32,000
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4,000 hours
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Required:
Calculate manufacturing overhead rates that would be applied to bicycles produced using activity-based costing, and explain how Brooklyn Cycles could achieve improved costing accuracy.