1. 2. Compute the total estimated indirect manufacturing cost for 2018. Prior to

Question

1. 2. Compute the total estimated indirect manufacturing cost for 2018. Prior to 2018, Edmund used a single plantwide overhead allocation rate system with direct labor hours as the allocation base. Compute the predetermined overhead allocation rate based on direct labor hours for 2018. Use this rate to determine the estimated indirect manufacturing cost per wheel rim for each model, to the nearest cent. Compute the estimated ABC indirect manufacturing cost per unit of each model for 2018. Carry each cost to the nearest cent. 3.

Explanation / Answer

1 Total estimated overhead cost = Predetermined overhead allocation rate*No. of labor hours = 14.1*7500 = 105750 Predetermined overhead allocation rate 2 Predetermined allocation rate for each activity Activity rate Consumption of activity Standard Consumption of activity Deluxe No. of units 500 500 Material Handling 3 8 12000 9 13500 Machine set up 500 13 19500 13 19500 Insertion of parts 24 6 9000 6.5 9750 Finishing 50 7 10500 8 12000 Total 51000 54750 Total estimated indirect cost 105750 Predetermined overhead allocation rate =Total Indirect cost/No. of labor hours       =105750/((500*7)+(500*8)) 14.1 Estimatation of indirect cost per unit Standard Deluxe Total No. of hours 3500 4000 Overhead allocation rate 14.1 14.1 allocated manufactured overhead 49350 56400 Units produced 500 500 per unit indirect cost allocated 98.7 112.8 3 Computation of total activity based costs allocated to each product line Activity rate Consumption of activity Standard Consumption of activity Deluxe No. of units 500 500 Material Handling 3 8 12000* 9 13500 Machine set up 500 13 19500 13 19500 Insertion of parts 24 6 9000 6.5 9750 Finishing 50 7 10500 8 12000 Total 39000 54750 Units produced 500 500 per unit 78 109.5 *   No. of units*Consumption of activity*activity rate e.g 12000* =500*8*3

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