Problem 5.36A a-b

Allen Inc. is a manufacturer of quality shoes. The company has always used a plant-wide allocation rate for allocating manufacturing overhead to its products. The plant manager believes it is time to change to a better method of cost allocation. The accounting department has established the following relationships between production activities and manufacturing overhead costs:

Activities		Cost Drivers		Allocation Rate
Material handling		Number of parts		$5	per part
Assembly		Labour hours		87	per hour
Inspection		Time spent by item at inspection station		19	per minute

The previous plant-wide allocation rate method was based on direct manufacturing labour hours, and if that method is used, the allocation rate is $800 per labour hour.

Assume that a batch of 1,000 pairs of shoes requires 4,000 parts, 50 direct manufacturing labour hours, and 60 minutes of inspection time. What are the indirect manufacturing costs per pair of shoes to produce a batch of 1,000 pairs of shoes, assuming the previous plant-wide allocation rate method is used?

Indirect manufacturing cost

$ per pair

What are the indirect manufacturing costs per pair of shoes to produce a batch of 1,000 pairs of shoes, assuming the activity-based method of allocation is used? (Round answer to 2 decimal places, e.g. 15.25.)

Indirect manufacturing cost

$ per pair