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Farraway Company uses Activity Based Costing (ABC) to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing
Farraway Company uses Activity Based Costing (ABC) to account for its chrome wheel manufacturing process. Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows: Activity Total Budgeted Manufacturing Overhead Cost Allocation Base Materials handling $13,200 Number of parts Machine setup... 5,200 Number of setups Insertion of parts..... 49,500 Number of parts Finishing... 86,100 Finishing direct labor hours Total $154,000 Farraway expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 3,300 parts, require 20 setups, and consume 2,100 hours of finishing time. Job 420 used 200 parts, required 2 setups, and consumed 150 finishing hours. Job 510 used 400 parts, required 4 setups, and consumed 320 finishing hours. Requirements: 1. Compute the cost allocation rate for each activity, 2. Compute the manufacturing overhead cost that should be assigned to Job 420
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