Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing overhead application rate based on direct labor hours. Currently, overhead is applied at the rate of $42/DLH. Brooklyn is now considering using activity-based driver rates to improve manufacturing overhead costing accuracy. Budgeted manufacturing overhead costs for expected driver activity are as follows:

Required:

Calculate manufacturing overhead rates that would be applied to bicycles produced using activity-based costing, and explain how Brooklyn Cycles could achieve improved costing accuracy.

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Budgeted Activity 8,000 hours 15,000 hours 5,000 hours Budgeted Cost Machining time Direct labor time Inspection time $280,000 S300,000 $ 50,000