Product costing in an activity-based costing system


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:


Total Budgeted Cost

Allocation Base

Materials handling

$ 9,000

Number of parts

Machine setup


Number of setups

Insertion of parts


Number of parts



Finishing direct labor hours


$ 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.


1. Compute the cost allocation rate for each activity.

2. Compute the indirect manufacturing cost of each bumper.

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Accounting Basics: Product costing in an activity-based costing system
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