Question
Nichols Inc. manufactures remote controls. Currently the company uses a plantminuswide rate for allocating manufacturing overhead. The plant manager is considering switchingminusover to ABC costing
Nichols Inc. manufactures remote controls. Currently the company uses a
plantminuswide
rate for allocating manufacturing overhead. The plant manager is considering
switchingminusover
to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
Activities | Cost driver | Allocation Rate |
Material handling | Number of parts | $2 per part |
Assembly | Labor hours | $20 per hour |
Inspection | Time at inspection station | $3 per minute |
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $200 per labor hour.
What are the indirect manufacturing costs per remote control assuming an
activityminusbasedminuscosting
method is used and a batch of 50 remote controls are produced? The batch requires 100 parts, 6 direct manufacturing labor hours, and 2.5 minutes of inspection time.
A.
$4.00 per remote control
B.
$327.50 per remote control
C.
$6.55 per remote control
D.
$24.00 per remote control
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