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Indianapolis Auto Parts (IAP] has a seat manufacturing department that uses Activity-Based Costing (ABC). IAP's activity cost allocation includes the following: Activity Allocation Base Activity
Indianapolis Auto Parts (IAP] has a seat manufacturing department that uses Activity-Based Costing (ABC). IAP's activity cost allocation includes the following: Activity Allocation Base Activity Cost Allocation Rate Machining Number of machine hours $ 30.00 per machine hour Assembling Number of parts $0.50 per part Packaging Number of finished seats $ 0.90 per finished seat Suppose Ford Motor Co. has asked for a bid on 50,000 built-in baby seats that would be installed as an option on some Ford SUVs. Each seat has 20 parts and direct materials cost per seat is $ 11.00. The job would require 10,000 direct labor hours at a wage rate of $25.00 per hour. In addition, IAP will use a total of 400 machine hours to fabricate some of the parts required for the seats. Requirements: 1 Compute the total cost of producing and packaging 50,000 baby seats. Also compute the average cost per seat. 2 For bidding, IAPadds a 30% markup to total cost. What price will the company bid for the Ford Motor Co. order? 3 Suppose that instead of an ABC system, IAP has a traditional product costing system that allocates manufacturing overhead at a plantwide overhead rate of $65.00per direct labor hour. The baby-seat order will require 10,000 DLH. Compute the total cost of producing the baby seats and the average cost per seat. What price will IAP bid using this sytem's total cost? 4 Use your answers to Requirements 2 and 3 to explain how ABC can help IAP make a better decision about the bid price it will offer Ford Motor Co
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