Baja Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based costing (ABC). Assume that the direct labor rate is $18.00 per hour and that there were no beginning inventories. The following cost drivers and rates have been developed for allocating manufacturing overhead costs:

    Activity                                                Cost Driver                                                   Rate
     Material handling                            Number of parts used                                $  2.00 per part
     Assembly and inspection                Number of direct labor hours                     $25.00 per DLH
     Testing                                            Number of units tested                                $  5.00 per unit

The following production, costs, and activities occurred during the month of August:

                                                 Direct                          Number of
       Units Produced            Material Cost                     Parts Used                Direct Labor Hours
               6,400                     $208,600                          142,000                         26,480

(a.) Calculate the total manufacturing cost and the cost per unit for the month of August.
(b.) Assume instead that Baja Industries applies manufacturing overhead on the basis of $40.00 per direct labor hours (rather than the ABC method). Calculate the total manufacturing overhead cost applied for the month of August.
(c.) Which method of applying overhead do you think provides better information for manufacturing managers?

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Answer a So the total manufacturing cost can be calculated by Direct labor Direct materials manufact... View the full answer