Question
Asian Tools, a manufacturer of precision hand tools, is concerned with the apparent lack of controls over cost incurrence in its Hand Tool Division. The
Asian Tools, a manufacturer of precision hand tools, is concerned with the apparent lack of controls over cost incurrence in its Hand Tool Division. The division has always used a plant-wide rate for allocating manufacturing overhead to its products. However, some products cost substantially more than competitors' retail prices while others arc substantially less. The division manager believes that a better cost allocation method can be developed. With the assistance of a plant supervisor, the accounting department has been able to establish the following relationship between production activities and the indirect costs of the activities:
Activity | Cost Driver | Allocation Rate |
Material handling | Number of parts | $ 2.60 per part |
Machine stamping | Machine hours | $ 60.00 per hour |
Finishing | Time tool is at work station | $ 4.00 per minute |
The traditional allocation method is based upon direct manufacturing labor hours and, if that method is used the rate is $28 per hour.
Required:
Compute the unit indirect manufacturing cost of a batch of 200 tools if the batch required 220 parts, 8 machine hours, 52 minutes of finishing time, and 46 direct labor hours:
a. Using the traditional allocation method
b. Using the activity base method.
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a Traditional allocation method 1288 per batch or 644 per tool 46 hours of direct labour 28 pe...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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