East Horizon 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: Activity Total Budgeted Manufacturing Allocation Base
Overhead Cost
Materials handling $13,200 Number of parts
Machine setup 5,200 Number of setups
Insertion of parts 49,500 Number of parts
Finishing 86,100 Finishing direct labor hours
Total $154,000
East Horizon expects to produce 1,000 chrome wheels during the year. The wheels are expected to use 2,750 parts, require 15 setups, and consume 1,700 hours of finishing time.
Job 420 used 300 parts, required 2 setups, and consumed 140 finishing hours.
Job 510 used 475 parts, required 4 setups, and consumed 330 finishing hours.
Requirement:
Compute the cost allocation rate for each activity. First, identify the formula. then compute the rate for each activity.