Question:
Product costing in an activity-based costing system
Fortunado, 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 2012 and their allocation bases are as follows:
|
Activity
|
Total Budgeted Cost
|
Allocation Base
|
|
Materials handling
|
$ 9,000
|
Number of parts
|
|
Machine setup
|
3,900
|
Number of setups
|
|
Insertion of parts
|
42,000
|
Number of parts
|
|
Finishing
|
82,000
|
Finishing direct labor hours
|
|
Total
|
$ 136,900
|
|
Fortunado expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
1. Compute the cost allocation rate for each activity.
2. Compute the indirect manufacturing cost of each bumper.