Question

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:

Activity Total Budgeted Cost Allocation Base

Inspections \( 5,700 Number of inspections

Machine setup 22,000 Number of setups

Machine maintenance 6,000 Finishing of machine hours

Total \) 33,700

Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.

Requirements

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

Short answer

Answer

Indirect cost per motorcycle: $172

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

The predetermined overhead allocation rate computed in the earlier part is as follow: –

Inspection: $57

Machine setup: $55

Machine maintenance: $60

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

$$\begin{gathered} \mathbf{Indirect}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{bumper}\mathbf{=}\mathbf{Inspection}\mathbf{}\mathbf{rate}\mathbf{+}\mathbf{Machine}\mathbf{}\mathbf{setup}\mathbf{}\mathbf{rate}\mathbf{+}\mathbf{Machine}\mathbf{}\mathbf{maintenance} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{57}\mathbf{+}\mathbf{\$}\mathbf{55}\mathbf{+}\mathbf{\$}\mathbf{60} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{172} \end{gathered}$$