x.Hmnt size=\"3\" face=\"Times New Roman\">9-35. Choosing an Activity-Based Cost

Question

x.Hmnt size="3" face="Times New Roman">9-35. Choosing an Activity-Based Costing System
Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a cruising bike (Route 66),
a street bike (Main Street), and a starter model (Alley Cat). Because of the different materials used,
production processes for each model differ signifcantly in terms of machine types and time
requirements. Once parts are produced, however, assembly time per unit required for each type of
bike is similar. For this reason, PMI allocates overhead on the basis of machine-hours. Last year,
the company shipped 1,000 Route 66s, 4,000 Main Streets, and 10,000 Alley Cats and had the
following revenues and expenses:

PICKLE MOTORCYCLES,INC.
Income Statement
                                                  Route 66      Main Street      Alley Cat       Total
Sales . . . . . . . . . . . . . . . . . . . . $7,600,000   $11,200,000   $9,500,000 $28,300,000
Direct costs
Direct materials. . . . . . . . . . .      3,000,000     4,800,000       4,000,000      11,800,000
Direct labor. . . . . . . . . . . . . .         288,000        480,000       1,080,000        1,848,000
Variable overhead
Machine setup. . . . . . . . . . .                                                                               520,000
Order processing. . . . . . . . .                                                                            1,280,000
Warehousing costs. . . . . . . .                                                                           1,860,000
Energy to run machines. . . .                                                                                840,000
Shipping. . . . . . . . . . . . . . . .                                                                              720,000
__________
Contribution margin. . . . . . . . .                                                                       $9,432,000
Fixed overhead
Plant administration. . . . . . .                                                                              1,760,000
Other fxed overhead. . . . . .                                                                              2,800,000
__________
Gross proft . . . . . . . . . . . . . . . .                                                                      $4,872,000
__________
__________
Page 317 318 Chapter 9 Activity-Based Costing

PMI’s chief fnancial offcer (CFO) hired a consultant to recommend cost allocation bases. The
consultant recommended the following:
Activity Level
___________________________
Activity Cost Driver                                                     Route 66           Main Street            Alley Cat
Setting up machines . . . Number of production runs                22                       34                        44
Processing orders . . . . . Number of sales orders received     400                       600                 &

Explanation / Answer

In the requirements of section a. '(See the "using energy" activity for machine hours.)', please provide the machine hours for the three models. Thanks.

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