Fletcher Inc. uses activity-based costing to account for its chrome bumper manuf

Question

Fletcher 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 ofparts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows: Table data Allocation Base Activity Materials handling Machine setup Insertion of parts Finishing Total Total Budgeted Cost $15,000 3,000 Number of parts Number of setups 52,000 75,000 $145,000 Number of parts Finishing direct labor hours expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 1,000 parts, require 5 setups, and consume 3,000 hours of finishing time.

Explanation / Answer

Step 1: Calculation of the Predetermined OH Rate Cost Driver Rate = Activity Cost / Cost Driver Activity Cost Driver   Activity Cost / Cost Driver = "/"   Cost Driver " = " To Predetermined OH Allocation Rate Material Handling Number of parts                             15,000 "/"                            1,000 " = " To                        15.00 Machine Setups No. of Set-ups                               3,000 "/"                                    5 " = " To                      600.00 Insertion of parts Number of parts                             52,000                          1,000 " = " To                        52.00 Finishing Finishing direct labor hours                             75,000 "/"                            3,000 " = " To                        25.00                         1,45,000 Step 2: Calculation of the Cost Driver Rate Per Unit Per Product Activity Product No. of Activity "X " By Predetermined OH Allocation Rate " = " To Activity Cost as per Service Department Number of parts Machine Setups Bumpers                               1,000 "X " By $                           15 " = " To $                 15,000 Machine Setups No. of Set-ups Bumpers                                        5 "X " By $                         600 " = " To $                    3,000 Insertion of parts Number of parts Bumpers                               1,000 "X " By $                           52 " = " To $                 52,000 Finishing direct labor hours Finishing Bumpers                               3,000 "X " By $                           25 " = " To $                 75,000 STEP 3 : - Calculation of the Revenue Divisional Income Statement For the year Ended June 30, 2014 Bumpers Material Handling $                                15,000 Machine Setups $                                  3,000 Insertion of Parts $                                52,000 Finishing $                                75,000 Total Manufactuing Cost $                            1,45,000 Divide By "/" By Number of Units 500 Mfg. OH Cost per Bumper $                                290.00 Answer = Bumpers $                                  -   Total Cost = $                            1,45,000 $                                  -   Overhead Cost per unit $                                290.00 $                                  -

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