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

1. Compute the predetermined overhead allocation rate for each activity.

Short answer

Predetermined overhead allocation rate

Inspection: $57

Machine setup: $55

Machine maintenance: $60

Step-by-step solution

Inspection

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{InspectionCost}{Numberofinspections}\\ =\frac{\$5,700}{100}\\ =\$57\end{array}$

Machine setup

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MachinesetupCost}{Numberofsetups}\\ =\frac{\$22,00}{40}\\ =\$55\end{array}$

Machine maintenance

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MachinemaintenanceCost}{Numberoffinfishingmachinehour}\\ =\frac{\$6,000}{100}\\ =\$60\end{array}$