# Farraway Company uses ABC to account for its chrome wheel manufacturing process. Company managers have identified four

## Question:

Farraway Company uses ABC to account for its chrome wheel manufacturing process.

Company managers have identified four manufacturing activities that incur manufacturing overhead costs: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for the upcoming year and their allocation bases are as follows:

Farraway expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 3,300 parts, require 20 setups, and consume 2,100 hours of finishing time.
Job 420 used 200 parts, required 2 setups, and consumed 150 finishing hours.
Job 510 used 400 parts, required 4 setups, and consumed 320 finishing hours.

Requirements:

1. Compute the cost allocation rate for each activity.
2. Compute the manufacturing overhead cost that should be assigned to Job 420.
3. Compute the manufacturing overhead cost that should be assigned to Job 510.

37. Newman Industries manufactures a variety of custom products. The company has traditionally used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing overhead to its products. The company estimates that it will incur $$1,440,000$$ in total manufacturing overhead costs in the upcoming year and will use 12,000 machine hours.
Up to this point, hazardous waste disposal fees have been absorbed into the plantwide manufacturing overhead rate and allocated to all products as part of the manufacturing overhead process. Recently, the company has been experiencing significantly increased waste-disposal fees for hazardous waste generated by certain products, and, as a result, profit margins on all products have been negatively impacted.
Company management wants to implement an activity-based costing system so that managers know the cost of each product, including its hazardous waste-disposal costs.
Expected usage and costs for manufacturing overhead activities for the upcoming year are as follows:

During the year, Job 356 is started and completed. Usage data for this job are as follows:

Requirements:

1. Calculate the cost of Job 356 using the traditional plantwide manufacturing overhead rate based on machine hours.
2. Calculate the cost of Job 356 using activity-based costing.
3. If you were a manager, which cost estimate would provide you more useful information? How might you use this information?

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