Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: $$\begin{array} { | l | c | c | c | }
\hline \text { Activity } & \begin{array} { c }
\text { Estimated Indirect } \
\text { Activity Costs }
\end{array} & \text { Allocation Base } & \begin{array} { c }
\text { Estimated Quantity of } \
\text { Allocation Base }
\end{array} \
\hline \text { Materials handling } & \$ 3,500 & \text { Number of parts } & 5,000 \text { parts } \
\hline \text { Assembling } & \$ 12,000 & \text { Number of parts } & 5,000 \text { parts } \
\hline \text { Packaging } & \$ 5,750 & \begin{array} { c }
\text { Number of bread } \
\text { boxes }
\end{array} & 1,250 \text { bread boxes } \
\hline
\end{array}$$ Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. There is no direct labor. What is the total manufacturing cost per breadbox?

Question

Alpha Company manufactures breadboxes and uses an activity-based costing system. The following information is provided for the month of May: $$\begin{array} { | l | c | c | c | } 
\hline \text { Activity } & \begin{array} { c } 
\text { Estimated Indirect } \
\text { Activity Costs }
\end{array} & \text { Allocation Base } & \begin{array} { c } 
\text { Estimated Quantity of } \
\text { Allocation Base }
\end{array} \
\hline \text { Materials handling } & \$ 3,500 & \text { Number of parts } & 5,000 \text { parts } \
\hline \text { Assembling } & \$ 12,000 & \text { Number of parts } & 5,000 \text { parts } \
\hline \text { Packaging } & \$ 5,750 & \begin{array} { c } 
\text { Number of bread } \
\text { boxes }
\end{array} & 1,250 \text { bread boxes } \
\hline
\end{array}$$ Each breadbox consists of 4 parts, and the direct materials cost per breadbox is $7.00. There is no direct labor. What is the total manufacturing cost per breadbox?

Quizplus · Accepted Answer

The total manufacturing cost per breadbox includes direct materials and allocated indirect costs. Direct materials cost is $7.00 per breadbox. Indirect costs are calculated using activity rates: Materials handling ($3,500/5,000 parts = $0.70 per part), Assembling ($12,000/5,000 parts = $2.40 per part), and Packaging ($5,750/1,250 breadboxes = $4.60 per breadbox). Each breadbox uses 4 parts, so indirect costs per breadbox are (4 parts x $0.70) + (4 parts x $2.40) + $4.60 = $17.00. Total cost per breadbox is $7.00 + $17.00 = $24.00.

Alpha Company Manufactures Breadboxes and Uses an Activity-Based Costing System