Chapter 19: 19E_1 (page 1070)

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:
Activity Total Budgeted Cost Allocation Base
Inspections $ 5,700 Number of inspections
Machine setup 22,000 Number of setups
Machine maintenance 6,000 Finishing of machine hours
Total $ 33,700
Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.

Short Answer

Expert verified

Predetermined overhead allocation rate

Inspection: $57

Machine setup: $55

Machine maintenance: $60

Step by step solution

Inspection

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{I n s p e c t i o n C o s t}{N u m b e r o f i n s p e c t i o n s} \\ = \frac{$ 5, 700}{100} \\ = $ 57 \end{matrix}$

Machine setup

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{M a c h i n e s e t u p C o s t}{N u m b e r o f s e t u p s} \\ = \frac{$ 22, 00}{40} \\ = $ 55 \end{matrix}$

Machine maintenance

$\begin{matrix} P r e d e t e r m i n e d O v e r h e a d A l l o c a t i o n r a t e = \frac{M a c h i n e m a i n t e n a n c e C o s t}{N u m b e r o f f i n f i s h i n g m a c h i n e h o u r} \\ = \frac{$ 6, 000}{100} \\ = $ 60 \end{matrix}$

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Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 230,000	Number of parts	\)1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

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

Standard bookcase	3,000	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 230,000	Number of parts	\)1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

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

Standard bookcase	3,000	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500

Short Answer

Step by step solution

Inspection

Machine setup

Machine maintenance

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