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3. Baja Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based
3. Baja Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based costing (ABC). Assume that the direct labor rate is $18.00 per hour and that there were no beginning inventories. The following cost drivers and rates have been developed for allocating manufacturing overhead costs: Activity Material handling Assembly and inspection Testing Cost Driver Number of parts used Number of direct labor hours Number of units tested Rate $ 2.00 per part $25.00 per DLH $ 5.00 per unit The following production, costs, and activities occurred during the month of August: Units Produced 6,400 Direct Material Cost $208,600 Number of Parts Used 142,000 Direct Labor Hours 26,480 (a.) Calculate the total manufacturing cost and the cost per unit for the month of August. (b.) Assume instead that Baja Industries applies manufacturing overhead on the basis of $40.00 per direct labor hours (rather than the ABC method). Calculate the total manufacturing overhead cost applied for the month of August. (c.) Which method of applying overhead do you think provides better information for manufacturing managers
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