XYZ company manufactures specialized wheel rims for large manufacturing machines. The company had originally used direct labor hours as the cost driver to develop one predetermined overhead rate.
You have been recently hired by this company to review the costing of this product and realize that maybe a predetermined overhead rate does not give an accurate cost picture.
You remember discussing overhead cost issues in MBA642 and want to implement ABC, so you have done some research and come up with the following activity cost pools and cost drivers.
Activity cost Pool	Budgeted Overhead Cost	Cost driver	Budgeted Level for cost Driver	Activity Pool Rate
Material Handling	72,000	Number of parts	24,000	$3.00
Inspections	18,000	Number of inspections	9,000
Insertion of parts	265,000	Number of parts	10,000
Finishing	200,000	Finishing department labor hours	20,000
Total Budgeted overhead cost	$555,000
Total Direct Labor hours	15,000
Required:	Round all answers to the nearest cent
1. Using the information above calculate the single predetermined overhead rate this company is using based on direct labor hours as the cost driver.
Predetermined overhead rate:
2. If the company uses the ABC approach, what would be the pool rates for the activities you have identified above.
I have computed the first activity pool rate above in column E and you should compute the remainder of the rates for the other activities.
3. The company produces two wheel rims as follows along with the usage of activities to make one standard rim and one deluxe rim:
	Standard	Deluxe
Parts per rim	5	7
Inpections	1	1
Finishing department labor hours per rim	3	5
Total direct labor hour per rim	5	8
If the company is using the predetermined overhead rate based on direct labor hours, what is the overhead cost for one rim of each wheel type?
	Standard	Deluxe
Total Overhead cost per each rim using a predetermined overhead rate
If the company is using the ABC method, what is the overhead cost for one rim of each type?
	Standard	Deluxe
Material Handling
Inspections
Insertion of parts
Finishing
Total Overhead cost for each rim using ABC
4. In addition to the overhead cost above, the rims have the following prime costs:
	Standard	Deluxe
Direct Materials	34	51
Direct Labor	48	54
Compute the Total product cost if the company uses the predetermined rate?
Compute the Total product cost if the company uses the ABC rate?
5. If there is not enough experienced labor to produce more standard and deluxe rims. The company is trying to maximize profits.
Below is the sales price per rim:	Standard	Deluxe
Sales price per rim	$800.00	$1,000.00
Compute the profit for each rim using the total product cost that you feel is more accurate.
	Standard	Deluxe
Which rim should the company produce and which method did you use to compute the profit? Why did you use either the predetermined rate or the ABC rate in the total product cost?