ENTER AMOUNTS TO CALCULATE THE REVISED FINISHING ACTIVITY COST PER RIM.

Would implementing the value engineering recommendation enable Eason to achieve its target cost for the deluxe rim?

Eason Company manufactures wheel rims. The controller budgeted ABC allocation rates for 2018. Eason produces two wheel rim models: standard and deluxe. Budgeted data for 2018 are as follows: (Click the icon to view the 2018 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.) Would implementing the value engineering recommendation enable Eason 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 X Predetermined Overhead Activity Allocation Base Allocation Rate Materials handling Number of parts 4.00 per part Number of setups 400.00 per setup Machine setup Insertion of parts Number of parts 26.00 per part Number of finishing hours 90.00 per hour Finishing Standard Deluxe Parts per rim 4.0 7.0 Setups per 500 rims 18.0 18.0 Finishing hours per rim 1.0 5.5 Total direct labor hours per rim 5.0 6.0 In 2019, Eason's managers used the same indirect manufacturing costs per wheel rim that they computed in 2018 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 2019 Standard Deluxe Sales price 940.00 800,00 S Direct materials 31.00 48.00 45.00 Direct labor 52.00 Allocated activity Quantity of Predetermined overhead allocation allocation cost per rim ABC cost per unit base used (Deluxe) rate X 4.00 = $ Materials handling 7.0 28.00 $ Machine setups 400.00= 0.036 14.40 $ Insertion of parts 182.00 7.0 26.00 $ 495.00 Finishing direct labor hours 5.5 $ 90.00 719.40 Total Market research shows that for the deluxe rim to provide a reasonable profit, Eason will have to meet a target manufacturing cost of 625.00 per rim. A value engineering study by Eason's employees suggests that modifications to the finishing process could cut finishing cost from $90.00 to $60.00 per hour and reduce the finishing direct labor hours per deluxe rim from 5.5 hours to 5.0 hours. Direct materials would remain unchanged at $48.00 per rim, as would direct labor at $52.00 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same