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?

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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Description: 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 t

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 3CE: Lansing. Inc., provided the following data for its two producing departments: Machine hours are used...

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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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