Bridgewater Toys Ltd. manufactures skateboards, boogie boards and scooters. Bridgewater has always allocated the indirect manufacturing overhead based on direct labour hours at a rate of $25 per hour. The plant manager believes this is not accurate and wants to change to a more accurate method of cost allocation. The accounting department provided the following analysis of the relationships between production activities and manufacturing overhead:

Activity Cost driver Allocation rate

Materials handling number of parts $0.25 per part

Assembly machine hours $4.50 per hour

Packaging labour hours $4.00 per hour

A typical batch of 100 skateboards requires 1200 parts, 17 direct labour hours and 8 hours of machine time.

Required

1. What would be the total indirect manufacturing costs allocated to each skateboard using their normal overhead allocation method? (5 marks)
2. What would be the total indirect manufacturing costs allocated to each skateboard using an Activity Based Costing method? (6 marks
3. Describe in your own words what types of organizations would likely be best suited to the use of ABC? Give an example. (4 marks)