Problem:
Product costing in an activity-based costing system
Elton Company manufactures wheel rims. The controller budgeted the following ABC allocation rates for 2012:
|
Activity
|
Allocation Base
|
Cost Allocation Rate
|
|
Materials handling
|
Number of parts
|
$ 4.00 per part
|
|
Machine setup
|
Number of setups
|
500.00 per setup
|
|
Insertion of parts
|
Number of parts
|
23.00 per part
|
|
Finishing
|
Finishing hours
|
50.00 per hour
|
The number of parts is now a feasible allocation base because Elton recently purchased bar coding technology. Elton produces two wheel rim models: standard and deluxe. Budgeted data for 2012 are as follows:
|
Standard
|
Deluxe
|
|
Parts per rim
|
6.0
|
9.0
|
|
Setups per 500 rims
|
17.0
|
17.0
|
|
Finishing hours per rim
|
5.0
|
6.5
|
|
Total direct labor hours per rim
|
6.0
|
7.0
|
The company expects to produce 500 units of each model during the year.
Requirements
1. Compute the total budgeted indirect manufacturing cost for 2012.
2. Compute the ABC indirect manufacturing cost per unit of each model. Carry each cost to the nearest cent.
3. Prior to 2012, Elton used a direct labor hour single-allocation-base system. Compute the (single) allocation rate based on direct labor hours for 2012. Use this rate to determine the indirect manufacturing cost per wheel rim for each model, to the nearest cent.