Tools, Inc., a manufacturer of power hand tools, is concerned with the apparent lack of controls over cost incurrence in its Power Tool Division. The division has always used a plant-wide rate for allocating manufacturing overhead to its products. However, some products cost substantially more than competitors' retail prices while others are substantially less. The division manager believes that a better cost allocation method can be developed.

With the assistance of a plant supervisor, the accounting department has been able to establish the following relationships between production activities and the indirect costs of the activities:

ActivityCost DriverAllocation Rate

Material handlingNumber of parts$3.90 per part

Machine stampingMachine hours$90.00 per hour

FinishingTime tool is at work station$6.00 per minute

The traditional allocation method is based upon direct manufacturing labor hours, and if that method is used the rate is $42 per hour.

Required:

Compute the unit indirect manufacturing costs of a batch of 100 tools if the batch required 110 parts, 4 machine hours, 26 minutes of finishing time, and 23 direct labor hours:

a)Using the traditional allocation method, and

b)Using the activity base method.

Answer rating: 100% (QA)

a Using the traditional allocation method First calculate the total indirect manufacturing cost usin... View the full answer