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

2. Compute the expected indirect manufacturing cost of each motorcycle.

Short Answer

Expert verified

Indirect cost per motorcycle:$172

Step by step solution

01

Indirect Manufacturing cost

Indirect manufacturing costs are the costs that are not visible in the production process but help the production process to run efficiently. These costs cannot be directly attributed to each product or service but can be allocated based on some allocation base.

02

Calculation of indirect manufacturing cost per bumper

The predetermined overhead allocation rate computed in the earlier part is as follow: –

Inspection: $57

Machine setup: $55

Machine maintenance: $60

The indirect cost for each motorcycle would be the sum of all the allocation rate.

Indireetcostperbumper=inspectionrate+machnesteuprate+Machinemaintenance=$57+$55+$60=$172

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Most popular questions from this chapter

Why are some quality costs hard to measure?

Question:Oscar, Inc. manufactures bookcases and uses an activity-based costing system. Oscar’s activity areas and related data follow:

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

*Refers to number of units receiving the finishing activity, not the number of units transferred to Finished Goods Inventory

Oscar produced two styles of bookcases in October: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

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

Requirements

1. Compute the manufacturing product cost per unit of each type of bookcase.

How can ABM be used by service companies?

Clason, Inc. manufactures door panels. Suppose Clason is considering spending the following amounts on a new total quality management (TQM) program:

___________________________________________________________________

Strength-testing one item from each batch of panels \( 68,000

Training employees in TQM 27,000

Training suppliers in TQM 39,000

Identifying suppliers who commit to on-time delivery of

perfect-quality materials 58,000

Clason expects the new program would save costs through the following:

___________________________________________________________________

Avoid lost profits from lost sales due to disappointed customers \) 86,000

Avoid rework and spoilage 63,000

Avoid inspection of raw materials 57,000

Avoid warranty costs 15,000

Requirements

1. Classify each cost as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

2. Should Clason implement the new quality program? Give your reason.

Answer

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

2. Determine the amount of overhead allocated in October.

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