1 Activity-Based Costing, Lean Operations, and the Costs of Quality 2 Use ABC to allocate manufacturing overhead Several years after reengineering its production process, Detting Corporation hired a new controller, Alana Metrgar. She developed an ABC system very similar to the one used by Dettling's chief rival, Part of the reason Metagar developed the ABC system was because Dettling's profits had been declining, even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, the company had used a plantwide overhead rate based on direct labor hours that 4 was developed years ago 5 For the upcoming year, Dettling's budgeted ADC manufacturing overhead allocation rates are as follows: Activity Materials handling Machine setup Insertion of parts Allocation Base Number of parts Number of setups Number of parts Finishing direct labor hours Activity Cost Allocation Rate $ 450 per part $325.00 per setup $ 31.00 per part Finishing $ 51.00 per hour The number of parts is now a feasible allocation base because Dettling recently installed a plantwide computer system. Dettliny produces two wheel models: Standard and Deluxe Budgeted data for the upcoming year areas follows: Deluxe Units 1,000 29 O Standard Expected production for each model Parts per wheel 4.0 Setups per 1,000 wheels 20.0 Finishing direct labor hours per wheel 1.0 Total direct labor hours per wheel 2.7 Use the blue shaded areas on the ENTERANSWERS tab for inputs. Always use cell references and formulas where appropriate to receive full credit 6.0 20.0 3.0 3.8 Requirements 1 Compute the total budgeted manufacturing overhead cost for the upcoming year. 2 Compute the manufacturing overhead cost per wheel of each model using ABC 3 Compute the company's traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system 1. Compute the total budgeted manufacturing overhead cost for the upcoming year. (Always use cell references and formulas where appropriate to receive full credit.) Total Budgeted Indirect Cost Activity Materials handling Machine setups Insertion of parts Finishing Total budgeted indirect costs 2. Compute the manufacturing overhead cost per wheel of each model using ABC. (Always use cell references and formulas where appropriate to receive full credit.) Activity Allocated Activity Cost Per Wheel Standard Deluxe Materials handling Machine setups Insertion of parts Finishing Total ABC allocated indirect cost 3. Compute the company's traditional plantwide overhead rate. (Always use cell references and formulas where appropriate to receive full credit.) Plant overhead rate per direct labor hour Use this rate to determine the manufacturing overhead cost per wheel under the traditional system, Manufacturing overhead cost per wheel Standard Deluxe