Question - 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.