Asian Tools, a manufacturer of precision hand tools, is concerned with the apparent lack of controls over cost incurrence in its Hand 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 arc 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 relationship between production activities and the indirect costs of the activities:

Activity	Cost Driver	Allocation Rate
Material handling	Number of parts	$ 2.60 per part
Machine stamping	Machine hours	$ 60.00 per hour
Finishing	Time tool is at work station	$ 4.00 per minute

The traditional allocation method is based upon direct manufacturing labor hours and, if that method is used the rate is $28 per hour.

Required:

Compute the unit indirect manufacturing cost of a batch of 200 tools if the batch required 220 parts, 8 machine hours, 52 minutes of finishing time, and 46 direct labor hours:

a. Using the traditional allocation method

b. Using the activity base method.

Answer rating: 100% (QA)

a Traditional allocation method 1288 per batch or 644 per tool 46 hours of direct labour 28 pe... View the full answer