Question

Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities:

materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Materials handling \( 12,000 Number of parts

Machine setup 3,100 Number of setups

Insertion of parts 42,000 Number of parts

Finishing 86,000 Finishing direct labor hours

Total \) 143,100

Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.

Requirements

2. Compute the expected indirect manufacturing cost of each bumper.

Short answer

Answer

Indirect cost per bumper: $409.5

Step-by-step solution

Indirect Manufacturing cost

Indirect manufacturing costs are the costs that are not visible in the production process but help the production process to run efficiently. These costs cannot be directly attributed to each product or service but can be allocated based on some allocation base.

Calculation of indirect manufacturing cost per bumper

Predetermined overhead allocation rate computed in the earlier part are as follow –

Material handling: $3

Machine setup: $310

Insertion of parts: $10.5

Finishing: $86

The indirect cost for each bumper would be the sum of all the allocation rate

$$\begin{gathered} \mathbf{Indirect}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{bump}\mathbf{}\mathbf{er}\mathbf{}\mathbf{=}\mathbf{}\mathbf{Material}\mathbf{}\mathbf{handling}\mathbf{}\mathbf{rate}\mathbf{+}\mathbf{}\mathbf{Machine}\mathbf{}\mathbf{setup}\mathbf{}\mathbf{rate}\mathbf{+}\mathbf{Insertion}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{rate}\mathbf{+}\mathbf{Finishing}\mathbf{}\mathbf{rate} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{\$}\mathbf{3}\mathbf{+}\mathbf{\$}\mathbf{310}\mathbf{+}\mathbf{\$}\mathbf{10}\mathbf{.}\mathbf{5}\mathbf{+}\mathbf{\$}\mathbf{86} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{}\mathbf{\$}\mathbf{409}\mathbf{.}\mathbf{5} \end{gathered}$$