Chapter 19: 18E_1 (page 1070)

Franklin, 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 of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Materials handling $ 12,000 Number of parts
Machine setup 3,100 Number of setups
Insertion of parts 42,000 Number of parts
Finishing 86,000 Finishing direct labor hours
Total $ 143,100
Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.

Short Answer

Expert verified

Predetermined overhead allocation rate

Material handling: $3

Machine setup: $310

Insertion of parts: $10.5

Finishing: $86

Step by step solution

Material handling

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{M a t e r i a l H a n d l i n g C o s t}{N u m b e r o f p a r t s} \\ = \frac{$ 12, 000}{4, 000} \\ = $ 3 \end{matrix}$

Machine setup

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{M a c h i n e s e t u p C o s t}{N u m b e r o f s e t u p s} \\ = \frac{$ 3, 100}{10} \\ = $ 310 \end{matrix}$

Insertion of parts

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{I n s e r t i o n C o s t}{N u m b e r o f p a r t s} \\ = \frac{$ 42, 000}{4, 000} \\ = $ 10.5 \end{matrix}$

Finishing

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{F i n i s h i n g C o s t}{F i n i s h i n g d i r e c t l a b o r h o u r} \\ = \frac{$ 86, 000}{1, 000} \\ = $ 86 \end{matrix}$

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Activity	Allocation Base	Cost Allocated to Each Unit

Start Station	Number of raw component chassis	3 X \)1.50 = \(4.50
Dip Insertion	Number of dip insertions	? X 0.50 = 14.50
Manual Insertion	Number of manual insertions	13 X 0.40 = ?
Wave solder	Number of components solders	3 X 1.50 = 4.50
Backload	Number of backload insertions	7 X ? = 2.80
Test	Number of testing hours	0.39 60.0 = ?
Defect analysis	Number of defect analysis hours	0.10 X ? = 4.00
Total activity-based costs		\) ?

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 240,000	Number of parts	\)1.00
Assembly	3,500,000	Number of assembling direct labor hours	17.00
Finishing	190,000	Number of finished units*	4.50

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	7,000	\(91,000	\)105,000	28,000	10,500
Unfinished bookcase	7,500	82,500	75,000	22,500	7,500

Short Answer

Step by step solution

Material handling

Machine setup

Insertion of parts

Finishing

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