18E_1 - Horngren'S Financial And Managerial Accounting

Question

Franklin, 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 of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows:

 

Activity                                Total Budgeted Cost                   Allocation Base

Materials handling                       \( 12,000                              Number of parts

Machine setup                                   3,100                           Number of setups

Insertion of parts                             42,000                              Number of parts

Finishing                                           86,000           Finishing direct labor hours

Total                                            \) 143,100

 

Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.

 

Requirements

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

 

Step-by-Step Solution

Answer

Predetermined overhead allocation rate

Material handling: $3

Machine setup: $310

Insertion of parts: $10.5

Finishing: $86

 

Material handling

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MaterialHandlingCost}{Numberofparts}\\ =\frac{\$12,000}{4,000}\\ =\$3\end{array}$

Machine setup

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MachinesetupCost}{Numberofsetups}\\ =\frac{\$3,100}{10}\\ =\$310\end{array}$

Insertion of parts

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{InsertionCost}{Numberofparts}\\ =\frac{\$42,000}{4,000}\\ =\$10.5\end{array}$

Finishing

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{FinishingCost}{Finishingdirectlaborhour}\\ =\frac{\$86,000}{1,000}\\ =\$86\end{array}$