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 $600 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts,5 direct manufacturing labor hours,and 18 minutes of inspection time.
A)$6.00 per remote control
B)$13.30 per remote control
C)$32.00 per remote control
D)$1,330.00 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 $600 per labor hour.
What are the indirect manufacturing costs per remote control assuming an activity-based-costing method is used and a batch of 100 remote controls are produced? The batch requires 460 parts,5 direct manufacturing labor hours,and 18 minutes of inspection time.
A)$6.00 per remote control 
B)$13.30 per remote control 
C)$32.00 per remote control 
D)$1,330.00 per remote control

Quizplus · Accepted Answer

Cost per batch = ($2 × 460)+ ($10 × 5)+ ($20 × 18)= $1,330.00 per batch
Cost per remote control = $1,330.00 per batch ÷ 100 units per batch = $13.30 per unit