Activity-Based Costing, Lean Operations, and the Costs of Quality Use ABC to allocate manufacturing overhead Several years after reengineering its production process, Dettling Corporation hired a new controller, Alana Metzgar. She developed an ABC system very similar to the one used by Dettling's chief rival. Part of the reason Metzgar 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 was developed years ago. For the upcoming year, Dettling's budgeted ABC 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 $ 4.50 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. Dettling produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows: Standard Deluxe Units 1,000 Expected production for each model Parts per wheel Setups per 1,000 wheels Finishing direct labor hours per wheel Total direct labor hours per wheel 4.0 20.0 1.0 2.7 6.0 20.0 3.0 3.8 Use the blue shaded areas on the ENTERANSWERS tab for inputs. Always use cell references and formulas where appropriate to receive full credit. 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 1. Compute the total budgeted manufacturing overhead cost for the upcoming year. 2 (Always use cell references and formulas where appropriate to receive full credit.) 3 Total Budgeted 4 Activity Indirect Cost 5 Materials handling 6 Machine setups 7 Insertion of parts 8 Finishing 9 Total budgeted indirect costs 10 11 2. Compute the manufacturing overhead cost per wheel of each model using ABC. 12 (Always use cell references and formulas where appropriate to receive full credit.) 13 14 Activity Allocated Activity Cost Per Wheel 15 Standard Deluxe 76 Materials handling 17 Machine setups 18 Insertion of parts 19 Finishing 20 Total ABC allocated indirect cost 21 22 3. Compute the company's traditional plantwide overhead rate. 23 (Always use cell references and formulas where appropriate to receive full credit.) 24 25 Plant overhead rate per direct labor hour 26 27 Use this rate to determine the manufacturing overhead cost per wheel under the traditional system. 28 29 Manufacturing overhead cost per wheel 30 Standard 31 Deluxe