Question - Farragut, Inc., uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2010 and their allocation bases are as follows:
Activity Total budgeted Cost Allocation Base
Materials Handling 6,000 Number of Parts
MAchine Setup 3,300 Number of Setup
Insertion of Parts 54,000 Number of Parts
Finishing 80,000 Finishing Directed Labor Hours
Total: 143,300
Farragut expects to produce 1,000 chrome bumpers during the year. The bumpers are expected to use 3,000 parts, require 20 setups, and consume 2,000 hours of finishing time.
Requirements -
1. Compute the cost allocation rate for each activity.
2. Compute the indirect manufacturing cost of each bumper.