Several years after reengineering its production process, Biltmore Corporation h

Question

Several years after reengineering its production process, Biltmore Corporation hired a new controller, Rachael Johnson. She developed an ABC system very similar to the one used by Biltmore's chief rival, Hotbeach. Part of the reason Johnson developed the ABC system was because Biltmore's profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, Biltmore had used a plantwide overhead rate based on direct labor hours that was developed years ago

Explanation / Answer

Part 1)

Biltmore Corporation

Total Budgeted Indirect Manufacturing Costs

Part 2) ABC Indirect manufacturing cost per unit (wheel)

Part 3 a) Plantwide Manufacturing overhead rate at traditional method:

Formula : Total Budgeted Indirect Costs / Total direct hours = Plantwide overhead rate

Solution: 690,000 / 6,000 = $115 per direct labor hour

Part 3 b) Manufacturing overhead cost per wheel

Formula : numbers of direct hours per wheel * plantwide overhead rate = Manufacturing overhead per wheel

Solution: Standard: 2.7 hours per wheel * 115 = $310.50 per wheel

Deluxe : 3.3 hours per wheel * 115 = $379.50 per wheel

Activity Budgeted quantity of cost allocated base Activity cost allocated rate Total Budgeted Indirect costs Material Handling 14000 3.50 49000 Machine Setups 20 450 9000 Insertion of parts 14000 30 420000 Finishing 4000 53 212000 Toal budgeted Indirect cost $ $690000

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