Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:

The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts, 5 direct manufacturing labor hours, and 3 minutes of inspection time.
A) $2.00 per remote control
B) $63.00 per remote control
C) $35.00 per remote control
D) $630.00 per remote control

Question

Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:

The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $20 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 10 remote controls are produced? The batch requires 100 parts, 5 direct manufacturing labor hours, and 3 minutes of inspection time.
A) $2.00 per remote control 
B) $63.00 per remote control 
C) $35.00 per remote control 
D) $630.00 per remote control

Quizplus · Accepted Answer

($5 × 100) + ($20 × 5) + ($10 × 3) = $630 per batch / 10 units per batch = $63.00 per unit