Several years after reengineering its production process, King Corporation hired a new controller, Jaxson Erickson. He developed an ABC system very similar to the one used by King’s chief rival. Part of the reason Erickson developed the ABC system was because King’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, the company had used a plantwide overhead rate, based on direct labor hours developed years ago.

For the upcoming year, King’s budgeted ABC manufacturing overhead allocation rates are as follows:

The number of parts is now a feasible allocation base because King recently purchased bar-coding technology. King 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.

Requirements:

1. Compute the total budgeted manufacturing overhead cost for the upcoming year.
2. Compute the manufacturing overhead cost per wheel of each model using ABC.
3. Compute the company’s traditional plantwide overhead rate. Use this rate to determine the manufacturing overhead cost per wheel under the traditional system.

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Activity Materials handling Number of parts Machine setup Number of setups Allocation Base Activity Cost Allocation Rate $ 4.00 per part $375.00 per setup Insertion of parts Finishing.... Number of parts $28.00 per part Finishing direct labor hours $ 54.00 per hour