Data Table Predetermined Overhead Allocation Rate Activity Allocation Base Number of parts Materials handling Machine setup Insertion of parts Number of setups Number of parts $6.00 per part 200.00 per setup 25.00 per part Finishing Number of finishing hours 70.00 per hour Standard Deluxe 4.0 6.0 Parts per rim Setups per 500 rims Finishing hours per rim 15.0 15.0 3.0 6.5 Total direct labor hours per rim 5.0 7.0 Data Table In 2025, Eaton's managers used the same indirect manufacturing costs per wheel rim that they computed in 2024 using activity-based costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company's standard and deluxe models for 2025. Standard Deluxe Sales price $ 800.00 $ 1,040.00 Direct materials 31.00 47.00 Direct labor 45.00 54.00 Predetermined Quantity of allocation overhead allocation Allocated activity cost per rim (Deluxe) base used rate = 6.0 6.00 = $ 36.00 ABC cost per unit: Materials handling Machine setups Insertion of parts 0.030 $ $ $ 200.00 = 6.00 6.0 25.00 = 150.00 455.00 Finishing direct labor hours 6.5 X $ 70.00 = 647.00 Total More Info Market research shows that for the deluxe rim to provide a reasonable profit, Eaton will have to meet a target manufacturing cost of 703.00 per rim. A value engineering study by Eaton's employees suggests that modifications to the finishing process could cut finishing cost from $70.00 to $60.00 per hour and reduce the finishing direct labor hours per deluxe rim from 6.5 hours to 6.0 hours. Direct materials would remain unchanged at $47.00 per rim, as would direct labor at $54.00 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same. Eaton Company manufactures wheel rims. The controller budgeted ABC allocation rates for 2024. Eaton produces two wheel rim models: standard and deluxe. Budgeted data for 2024 are as follows: (Click the icon to view the 2024 allocation rates and budgeted data.) |(Click the icon to view additional information, budgeted information and the deluxe unit cost calculation.) Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. He had a market research study conducted. i (Click the icon to view the results of the market research.) I. Would implementing the value engineering recommendation enable Eaton to achieve its target cost for the deluxe rim? Begin by selecting the formula to allocate overhead (OH) costs. Then enter the amounts to calculate the revised finishing activity cost per rim. Allocated mfg. overhead costs x =
