Several years after reengineering its production process Enke Corp hired
Several years after reengineering its production process, Enke Corp. hired a new controller, Natalie Babin. She developed an ABC system very similar to the one used by Enke’s chief rival, Northstar. Part of the reason Babin developed the ABC system was because Enke’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, Enke had used a plantwide overhead rate based on direct labour hours that was developed years ago.
For the upcoming year, Enke’s budgeted ABC manufacturing overhead allocation rates are as follows:
The number of parts is now a feasible allocation base because Enke recently purchased bar-coding technology. Enke produces two wheel models: Standard and Deluxe. Budgeted data for the upcoming year are as follows:
The company’s managers expect to produce 1,000 units of each model during the year.
1. Compute the total budgeted MOH cost for the upcoming year.
2. Compute the MOH cost per wheel of each model using ABC.
3. Compute Enke’s traditional plantwide overhead rate. Use this rate to determine the MOH cost per wheel under the traditional system.
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