19E_1 - Horngren'S Financial And Managerial Accounting

Question

Turbo Champs Corp. uses activity-based costing to account for its motorcycle manufacturing process. Company managers have identified three supporting manufacturing activities: inspection, machine setup, and machine maintenance. The budgeted activity costs for 2018 and their allocation bases are as follows:

         Activity                        Total Budgeted Cost                     Allocation Base

Inspections                                     \( 5,700                      Number of inspections

Machine setup                                 22,000                               Number of setups

Machine maintenance                       6,000              Finishing of machine hours

Total                                                \) 33,700

 

Turbo Champs expects to produce 20 custom-built motorcycles for the year. The motorcycles are expected to require 100 inspections, 40 setups, and 100 machine hours.

 

Requirements

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

Step-by-Step Solution

Answer

Predetermined overhead allocation rate

Inspection: $57

Machine setup: $55

Machine maintenance: $60

Inspection

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{InspectionCost}{Numberofinspections}\\ =\frac{\$5,700}{100}\\ =\$57\end{array}$

Machine setup

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MachinesetupCost}{Numberofsetups}\\ =\frac{\$22,00}{40}\\ =\$55\end{array}$

Machine maintenance

$\begin{array}{c}PredeterminedOverheadAllocationrate=\frac{MachinemaintenanceCost}{Numberoffinfishingmachinehour}\\ =\frac{\$6,000}{100}\\ =\$60\end{array}$