Question

Eason Company manufactures wheel rims. The controller expects the following ABC allocation rates for 2018:

Activity Allocation Base Predetermined Overhead

Allocation Rate

Materials handling Number of parts $ 4.00 per part

Machine setup Number of setups 400.00 per setup

Insertion of parts Number of parts 26.00 per part

Finishing Number of finishing hours 90.00 per hour

Eason produces two wheel rim models: standard and deluxe. Expected data for 2018 are as follows:

Standard Deluxe

Parts per rim 4.0 7.0

Setups per 500 rims 18.0 18.0

Finishing hours per rim 1.0 5.5

Total direct hours per rim 5.0 6.0

The company expects to produce 500 units of each model during the year.

Requirements

3. Compute the estimated ABC indirect manufacturing cost per unit of each model for 2018. Carry each cost to the nearest cent.

Short answer

Per unit indirect cost for standard model: $224.4

Per unit indirect cost for Deluxe model: $719.4

Step-by-step solution

Step-by-Step-SolutionStep 1: Computation for the standard model

$$\begin{gathered} \mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Material}\mathbf{}\mathbf{handling}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{\times }\mathbf{4} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{16} \end{gathered}$$

$\begin{array}{c}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Machine}\mathbf{}\mathbf{setup}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocationrate}\mathbf{\times }\frac{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{setups}\mathbf{}\mathbf{per}\mathbf{}\mathbf{500}\mathbf{units}}{\mathbf{No}\mathbf{}\mathbf{of}\mathbf{}\mathbf{expected}\mathbf{}\mathbf{units}}\\ \mathbf{=}\mathbf{\$}\mathbf{400}\mathbf{\times }\frac{\mathbf{18}}{\mathbf{500}}\\ \mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{.}\mathbf{4}\end{array}$

$\begin{array}{c}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Insertion}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\\ \mathbf{=}\mathbf{\$}\mathbf{26}\mathbf{\times }\mathbf{4}\\ \mathbf{=}\mathbf{\$}\mathbf{104}\end{array}$

$\begin{array}{c}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Finishing}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{finishing}\mathbf{}\mathbf{hour}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\\ \mathbf{=}\mathbf{\$}\mathbf{90}\mathbf{\times }\mathbf{1}\\ \mathbf{=}\mathbf{\$}\mathbf{90}\end{array}$

role="math" localid="1653233712391" $$\begin{gathered} \mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{indirect}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{for}\mathbf{}\mathbf{standard}\mathbf{}\mathbf{model}\mathbf{=}\mathbf{Material}\mathbf{}\mathbf{handling}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Machine}\mathbf{}\mathbf{steup}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Insertion}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Finishing}\mathbf{}\mathbf{cost} \\ \begin{array}{c}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{16}\mathbf{+}\mathbf{\$}\mathbf{14}\mathbf{.}\mathbf{4}\mathbf{+}\mathbf{\$}\mathbf{104}\mathbf{+}\mathbf{\$}\mathbf{90}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{224}\mathbf{.}\mathbf{4}\end{array} \end{gathered}$$

Computation for the deluxe model

$\begin{array}{c}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Material}\mathbf{}\mathbf{handling}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{\times }\mathbf{7}\\ \mathbf{=}\mathbf{\$}\mathbf{28}\end{array}$

$$\begin{gathered} \mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Machine}\mathbf{}\mathbf{setup}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\frac{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{setups}\mathbf{}\mathbf{per}\mathbf{}\mathbf{500}\mathbf{}\mathbf{units}}{\mathbf{No}\mathbf{}\mathbf{of}\mathbf{}\mathbf{}\mathbf{expected}\mathbf{}\mathbf{}\mathbf{units}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{400}\mathbf{\times }\frac{\mathbf{18}}{\mathbf{500}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{14}\mathbf{.}\mathbf{4} \end{gathered}$$

$\begin{array}{c}\mathbf{Perunit}\mathbf{}\mathbf{Insertion}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\\ \mathbf{=}\mathbf{\$}\mathbf{26}\mathbf{\times }\mathbf{7}\\ \mathbf{=}\mathbf{\$}\mathbf{182}\end{array}$

$\begin{array}{c}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{Finishing}\mathbf{}\mathbf{cost}\mathbf{=}\mathbf{Predetermined}\mathbf{}\mathbf{overhead}\mathbf{}\mathbf{allocation}\mathbf{}\mathbf{rate}\mathbf{\times }\mathbf{Number}\mathbf{}\mathbf{finishing}\mathbf{}\mathbf{hour}\mathbf{}\mathbf{per}\mathbf{}\mathbf{unit}\\ \mathbf{=}\mathbf{\$}\mathbf{90}\mathbf{\times }\mathbf{5}\mathbf{.}\mathbf{5}\\ \mathbf{=}\mathbf{\$}\mathbf{495}\end{array}$

$$\begin{gathered} \mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{indirect}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{for}\mathbf{}\mathbf{standard}\mathbf{}\mathbf{model}\mathbf{=}\mathbf{Material}\mathbf{}\mathbf{handling}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Machine}\mathbf{}\mathbf{steup}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Insertion}\mathbf{}\mathbf{of}\mathbf{}\mathbf{parts}\mathbf{}\mathbf{cost}\mathbf{+}\mathbf{Finishing}\mathbf{}\mathbf{cost} \\ \begin{array}{c}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{28}\mathbf{+}\mathbf{\$}\mathbf{14}\mathbf{.}\mathbf{4}\mathbf{+}\mathbf{\$}\mathbf{182}\mathbf{+}\mathbf{\$}\mathbf{495}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{719}\mathbf{.}\mathbf{4}\end{array} \end{gathered}$$